Small business optimism has reached its lowest level since 2012 as inflation fears persist, according to a National Federation of Independent Business (NFIB) survey. 

Small Business Confidence Hits its Lowest Since 2012

The NFIB reported Tuesday that its survey showed that small business confidence dipped to 88.5 in March, marking a decline of nearly a point from February and representing the lowest reading since December 2012. 

The NFIB noted that many respondents identified rising costs as a significant challenge, with a quarter highlighting inflation as the primary issue.

"Small business optimism has reached the lowest level since 2012 as owners continue to manage numerous economic headwinds. Inflation has once again been reported as the top business problem on Main Street and the labor market has only eased slightly," NFIB Chief Economist Bill Dunkelberg said in the report.

Among the key findings of the NFIB's report was that many respondents cited inflation, particularly higher input and labor costs, as their most pressing concern. 

The data also shows that the percentage of owners raising average selling prices for the month increased seven points from February to a net 28% seasonally adjusted and 33% planned additional price hikes.

The seasonally adjusted data also highlighted that 37% of small business owners reported job openings they could not fill in the current period. Additionally, there was a 38% increase in the percentage of owners who reported raising compensation, up three points from February's lowest reading since May 2021.

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Response of Federal Reserve to Economic Conditions

The NFIB's report underscored the prevailing challenges that small businesses face, particularly in navigating inflationary pressures and managing operating costs. 

The Federal Reserve's response to these economic conditions has been scrutinized. Potential shifts in interest rate policy are being considered amid divergent views on the appropriate course of action.

"The small business sector is showing signs of a potential slowdown in economic activity with net sales expectations falling 8 points, the main contributor to the decline in last month's Index," the NFIB's report said. 

"However, continued stress in navigating inflation pressures leads as the top business problem. Inflation continues to frustrate owners as a significant share of them still report it as their biggest problem in operating their business," it added.

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