Post and Courier
April 14, 2022
Higher inflation deflates optimism among small business owners, an NFIB study shows
By Jodi Shafto jshafto@postandcourier.com
The number of small businesses that say inflation is their single most crucial problem is at 31 percent, the biggest share since the first quarter of 1981 — many are having to raise prices to battle their rising costs.
The National Federation of Independent Businesses polls its members monthly for its Small Business Optimism Index.
The lobby group’s index declined for a 3rd straight month in March to 93.2, from 95.7 in February. It is at the lowest level since April 2020 and below the 48-year average of 98 for the third consecutive month.
“Inflation has impacted small businesses throughout the country and is now their most important business problem,” said NFIB Chief Economist Bill Dunkelberg. Previously small business owners named “labor quality” their number one concern.
“With inflation, an ongoing staffing shortage, and supply chain disruptions, small business owners remain pessimistic about their future business conditions,” Dunkelberg said.
Costs for small businesses have increased due to supply chain problems. They have increased employee costs as they deal with the labor shortage and higher transportation costs, said Frank Knapp, CEO and co-founder of the South Carolina Small Business Chamber of Commerce.
“Unfortunately, unlike big corporations that can absorb some increase in costs, small businesses must pass their increased costs to their customers,” Knapp said.
The NFIB’s survey showed that 72 percent of small business owners raised prices in March. That’s four percentage points more than in February and the highest reading in the survey’s history.
Price hikes were most prevalent in wholesale, where 84 percent of owners reported having to increase prices to offset higher operating costs.
But wholesalers are not alone. The report showed 83 percent of construction businesses, 78 percent of small agricultural companies, and 77 percent of retail sellers increased prices.
Knapp said that small businesses have also had to look more closely at where they can cut costs.
“This might take the shape of reduced hours, reducing their goods and services offered and the business owner doing more hands-on work,” Knapp said.
But not all businesses are suffering equally.
There are sectors where costs are up, so businesses increase prices, but because demand is strong, their margins are actually growing, said Laura Ulrich, a Richmond Federal Reserve Bank economist.
For example, “some hotels, especially on the coast, are seeing so much demand that while their costs might be way up, they can increase the prices of their rooms,” Ulrich said.
Other industries can’t pass costs on to consumers, and their costs become burdensome.
Ulrich said, “interestingly, the labor shortage is kind of offsetting some of these costs. If you’re a bit short-staffed, your labor costs are lower, so your overall costs are down.”
But the labor shortage is still a huge problem. Forty-seven percent of small-business owners responding to the March NFIB survey reported job openings that could not be filled, down one point from February.
In South Carolina, particularly in the larger cities, including Charleston, Greenville and Charlotte, the labor issues are partly because population growth is driving strong demand, Ulrich said.
The statewide labor force, defined as the number of residents who are working or actively looking for jobs, grew by 3,822 from January to almost 2.38 million, according to a report released March 25 by the S.C. Department of Employment and Workforce.
Meanwhile, South Carolina’s persistently low labor participation rate, notched a modest one-tenth of a point gain to 57.2 percent.
Even as South Carolinians returned to work in February, a growing labor force kept the state’s unemployment rate steady at 3.5 percent.
The SCDEW will release March employment data Friday.
Experts say that while the supply chain is getting better and demand for goods and services stabilizes, the country must address its labor shortage