- Small business owners' confidence level dropped in January, the National Federation of Independent Business said.
- 20% of business owners cited inflation as their top concern, while 39% blamed labor issues.
Small business sentiment logged the biggest drop in 13 months in January as business owners say inflation and high labor costs are creating headwinds.
The National Federation of Independent Business Small Business Optimism headline index began 2024 with a decline from 91.9 in December to 89.9 in January, marking the largest drop since December 2022 and the 25th consecutive month below the 50-year average of 98, according to a report released by NFIB on Tuesday. The reading was the lowest since May 2023.
On top of that, small business owners anticipating increased sales in the next three months declined to -16% from -4% the prior month.
Sticky inflation and elevated labor costs have dragged down owners' expectations for their businesses, with 20% citing inflation as their top concern and 39% saying that they're struggling to fill open positions.
"Small business owners continue to make appropriate business adjustments in response to the ongoing economic challenges they're facing," said NFIB Chief Economist Bill Dunkelberg. "In January, optimism among small business owners dropped as inflation remains a key obstacle on Main Street."
The drop in sentiment comes even as the general economic outlook remains upbeat. It's worth noting that the consumer confidence index increased for a third consecutive month, reaching 114.8 in January, up from 108 in December.
"The weaker small business optimism print seems at odds with a notable increase in consumer confidence during January," Wells Fargo said in a note.
The newly released inflation reading of 3.1% in January disappointed markets that were betting on a lower figure to pull forward rate-cut timelines, with the latest consumer price index reading serving as a reminder that the Federal Reserve does not have a lid on inflation just yet.
The NFIB survey also showed that 5% of business owners blamed financing for major challenges they face, with many of them paying higher interest rates on debt since the Fed began hiking rates nearly two years ago.