US small-business sentiment skids to half-year low

US small-business confidence slid to a six-month low in December, according to a survey on Tuesday, which also showed that inflation and worker shortages remained major issues for firm owners.

The National Federation of Independent Business (NFIB) said its Small Business Optimism Index fell 2.1 points to 89.8 last month - the lowest since June - amid a decline in the share of owners who expected better business conditions over the next six months.

It was the 12th straight month that the index was below the 49-year average of 98. The net share of owners expecting better business conditions over the next six months fell to -51% last month from -43% in November. It was -61% as recently as June.

Thirty-two percent of owners reported that inflation was their single most important problem, unchanged from November and 5 points lower than July’s reading, which was the highest since the fourth quarter of 1979. On net, about 43% of owners reported raising average selling prices, down 8 points from November and the lowest since May 2021.

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Government data due on Thursday is expected to show consumer prices were unchanged in December from the month before, with the annual increase in inflation likely the smallest since October 2021, according to a Reuters survey of economists.

While price pressures showed signs of easing as 2022 came to a close, Federal Reserve officials have yet to signal they are convinced the slowdown in inflation is anywhere near sufficient to allow them to stop raising interest rates in the near term.

The Fed, in the most aggressive interest rate hikes since the 1980s, last year raised its policy rate from near zero in March to a range of 4.25% to 4.5% last month. The central bank is seen increasing it by another quarter percentage point at its meeting on Jan. 31-Feb. 1, with an eye to pushing it above 5% before considering a pause.

A tight labor market remains a concern for the Fed and small businesses.

Forty-one percent of owners reported job openings that were hard to fill, down 3 points from November. The difficulty in filling open positions was most acute in the transportation, manufacturing and construction industries, the NFIB said.

“Overall, small business owners are not optimistic about 2023 as sales and business conditions are expected to deteriorate,” said William Dunkelberg, NFIB chief economist. “Owners are managing several economic uncertainties and persistent inflation and they continue to make business and operational changes to compensate.”