Small business sentiment plummeted in the final three months of the year, reflecting fears over the near-term economic outlook, persistent worker shortages and chronic inflation.
The Small Business Index, published by MetLife and the U.S. Chamber of Commerce, sank to 61.3 last month, a 7.9 percentage point decrease from the previous quarter. It marks a return to the low scores seen earlier this year and in late 2022.
"With inflation still outpacing revenue expectations, small business owners are wary of the future and continue to have an overall negative impression about the national economy," said Tom Sullivan, vice president of small business policy at the Chamber of Commerce.
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The decline stems from a worsening view of the U.S. economy.
Just one-quarter of small businesses say the national economy is in "good health," while 30% say their local economy is in good health – both down 8 percentage points from the previous quarter.
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Small business owners also remain worried about the state of still-high inflation. For the sixth straight quarter, 50% of small businesses cited inflation as one of the biggest challenges that they are facing. Although the consumer price index has fallen considerably from a peak of 9.1% notched in June 2022, it remains above the Federal Reserve's 2% target.
On top of that, prices are up a stunning 17.23% when compared with January 2021, before the inflation crisis began.
Hiring continued to pose a threat to small businesses in the three-month period from October to December, as low unemployment and rapid wage increases over the past year made it harder for the owners of these firms to compete with big companies and onboard new employees.
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Nearly half – about 45% – of small business owners reported searching for, recruiting or interviewing new talent in 2023. About half of those respondents said it is difficult to offer competitive pay and benefits, while 60% said it is "challenging" to keep up with existing employees' salary expectations.
Despite the reported challenges, small business owners remain fairly optimistic about their own finances. The index shows that about two-thirds of small businesses feel the health of their business is very or somewhat good.
"Holiday shopping is already setting records this year and most small businesses say they are doing okay despite persistent headwinds," Sullivan said.
