Inflation Worries Drive Optimism About the Future to Record Low Among Small Businesses | Economy

Small businesses are gloomy about their future, with an index of future expectations plunging to a 48-year record low, the National Federation of Independent Business reported on Tuesday.

While the monthly Small Business Optimism Index was unchanged in April, the percentage of firms saying inflation was their most important problem hit its highest reading since 1980 at 32%.

“Small business owners are struggling to deal with inflationary pressures,” said NFIB Chief Economist Bill Dunkelberg. “The labor supply is not responding strongly to small businesses’ high wage offers and the impact of inflation has significantly disrupted business operations.”

Hiring remains a challenge, as small businesses find themselves squeezed between paying more for their supplies while also having to raise wages. Some 47% reported job openings that they were having trouble filling.

Last week, payroll firm ADP reported that small businesses actually shed 120,000 workers in April, while large companies were able to add 320,000 employees.

Consumer prices rose at an 8.5% annual rate in March, the highest level in four decades. On Wednesday, the government will report the number for April, with forecasts of a slight improvement.

But the Federal Reserve has embarked on a tightening of monetary policy, last week announcing a 50 basis point hike in interest rates. That is aimed at slowing the economy, which will put more pressure on businesses going forward.

That has unnerved both the stock and bond markets, which have seen some of the worst trading days in a decade. Analysts say markets are trying to find a jog in a new environment where the Fed is no longer seen as providing them as much support.

“This is a tightrope walk by the Fed,” John Lynch, chief investment officer for Comerica Wealth Management, wrote on Monday. “If it moves too slowly, it risks not tamping down inflation and having higher inflation expectations become embedded – making it more difficult to eliminate.”

“Conversely, if the Fed raises rates too quickly, it risks tilting the economy into recession, with the associated job losses and other costs,” he added. “The Fed has a difficult task ahead of it.”