In an earlier post, we noted the improvement to small business sentiment per the latest data from the NFIB. The report also includes survey responses as to what small businesses perceive to be their biggest problems. The July report showed that small businesses have begun to take notice of easing inflation. As shown below, throughout 2022 and into portions of 2023, inflation has ranked as the number one problem among small businesses. But in July, Quality of Labor retook the number one spot as it had temporarily back in May. Meanwhile, there has been a rise businesses saying that government requirements and red tape are their number one problem, tying cost of labor for the fourth most pressing issue.

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Obviously, as it still occupies the number two spot, inflation remains a major problem. Even though it is a big improvement from 37% exactly one year ago, there continues to be 21% of firms that report inflation as their biggest problem. That is also well above any reading observed pre-pandemic.

On a combined basis, cost and quality of labor are the most commonly reported problem for small businesses at 33% of responses. Unlike inflation which is hitting new lows, that is in the middle of the past few years’ range.

Historically, the NFIB survey has had sensitivities to politics with a bias towards being more optimistic during Republican administrations and vice versa. Since the Biden Presidency began, government-related problems have been on the backburner given that inflation has been playing a more pressing role. However, there has been a steadily rising number of responses once again reporting government red tape or taxes as their biggest issues. That has come hand in hand with an increase in the survey’s Economic Policy Uncertainty Index which experienced a pronounced 4-point jump month over month in July.

Finally, we would note very few firms are reporting sales as their biggest problem. That is a significant disconnect from the index on actual sales changes which hit new lows in July.

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