Small Businesses

3 economic factors concerning U.S. small business owners

  • 5 min Read
  • August 1, 2023

Author

Grace Townsley
Grace Townsley

As a professional copywriter in the finance and B2B space, Grace Townsley offers small business leaders big insights—one precisely chosen word at a time. Let's connect!

Table of Contents

The future, for small business owners across every industry, holds both promise and apprehension. The recent economic landscape has been marked by optimism, as consumer spending slowly rises and inflation finally shows signs of slowing — after two years of steady increases. But owners are still cautious about what’s to come, and hesitant to believe a better market is ahead.

Every month, the National Federation of Independent Business (NFIB), which consists of 300,000 small businesses in the United States, publishes a Small Business Economic Trends report. This report is based on survey questions about small business owner outlooks, hiring plans, investment initiatives, expansion and economic concerns. After compiling this monthly data, the NFIB weights the results and determines this month’s Small Business Optimism Index, rating small business owners’ average confidence in the state of small businesses, on a scale of 1-100. 

In May, the Small Business Optimism Index rose just 0.4 points, to 89.4. This marks the 17th month in a row with a rating below 98 — the average index rating for 49 years.

Schedule a call today

These three key concerns are keeping the confidence index low:

Inflation


Inflation remains a significant challenge and concern for small business owners. According to the NFIB’s May survey, 25% of business owners cited inflation as the biggest problem impacting their operations. Inflation continues to make capital expensive and hard to access by pressuring the Federal Reserve to push up interest rates, which limits the growth of capital-reliant businesses and those looking to expand. Inflation can also hurt consumer spending, as customers opt to save rather than buy in the short term. 

As a result of high inflation, small businesses may find it difficult to secure the funding they need for expenses like real estate, expansion, vehicles or new equipment. In 2023 and beyond, banking relationships will become more important, giving businesses the best opportunity to access the loans they need to grow.

Labor quality


The second big concern limiting small business owners’ optimism in the future is the persistent labor shortage and the quality of labor that is available. Nearly 24% of the NFIB’s respondents cited labor quality as a significant challenge hindering their growth, and 44% reported having job openings they were unable to consistently fill. Considering 41% also reported raising wages in May, it’s no wonder that labor costs and labor quality concerns go hand in hand. 

Talk to us about how Escalon’s essential business services can help your small business stay resilient through tough economic times.


With unemployment bottoming out at an all-time low in a handful of states, and sitting at just 3.6% nationwide, small businesses in many industries are finding it increasingly difficult to hire new qualified talent. 

These industries are facing the tightest labor shortages across the nation:

  • Food service
  • Hospitality
  • Health care
  • Social assistance
  • Manufacturing
  • Wholesale and retail trade
  • Education 

It’s important to note that labor quality doesn’t just impact small businesses’ ability to hire workers. It’s often tied to the retention of skilled personnel, too. The more companies there are searching for talented workers, the better incentives and benefits these companies are willing to offer to onboard the best talent available. That can make it increasingly difficult and expensive for small businesses to retain their workers, when big companies with deeper pockets can afford to poach their quality talent. 

Another complicating factor in the labor market is the growing skills gap. The market is evolving quickly, requiring workers to have increasingly advanced skills just to keep up with the basic technologies small businesses now leverage. That means many businesses are feeling the pressure to find workers without raising overhead, then upskilling those employees in-house. 

Increasing commodity costs


The third major concern business owners are facing is closely related to inflation: The escalating cost of commodities. Common commodities like oil, fuel, metals, food and timber are the basic necessary inputs for millions of products. Even minor commodity price increases can put substantial pressure on small businesses to trim other costs, shrink their margins or increase sale prices. This concern particularly impacts small businesses in the manufacturing industry, where raw materials are a significant portion of production costs. 

In May, a full 68% of surveyed businesses reported that rising commodity prices were a top concern in the coming months. While short-term price bumps can be compensated for, consistently rising or widely fluctuating costs create a squeeze on business profitability, drive up operating expenses, and can force small business owners to pass high costs onto their customers — potentially impacting long-term demand. 

Despite the lower-than-average index rating, small businesses remain hopeful


The number of business owners who think now is a good time to expand their business increased slightly, as did real sales expectations. Plus, with consumer spending up 0.4% in June, further index increases may be just around the corner. 

The Small Business Optimism Index does reflect the caution of business owners across the country. But at nearly 90 points in May, and continuing to rise, it also shows the perseverance and enduring spirit of entrepreneurs. 

Want more? Escalon provides comprehensive back-office solutions to small businesses to cope with difficult economic situations. Escalon’s services support firms with outsourced accounting, taxes, human resource, risk management and compliance. Talk to an expert today.

Schedule a call today

This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.

Talk to our team today to learn how Escalon can help take your company to the next level.

  • Expertise you can trust

    Our team is made up of seasoned professionals who bring years of industry experience to the table. You gain a trusted advisor who understands your business inside out.

  • Quality and consistency

    Say goodbye to the hassles of hiring, training and managing in-house finance teams. You will never have to worry about unexpected leave of absence or retraining new employees.

  • Scalability and Flexibility

    Whether you’re a small business or a global powerhouse, our solutions scale with your needs. We eliminate inefficiencies, reduce costs and help you focus on growing your business.

Contact Us Today!

Tap into the latest insights from experts in your industry

People Management & HR

2025 Employment Law Updates: What to Know

As we step into 2025, businesses across the country face several important updates in labor laws and employee benefits. Staying...

Read More
Startups

5 Signs Your Startup Needs an Outsourced CFO  

5 Signs Your Startup Needs an Outsourced CFO   Startups often operate with lean teams, but as they grow, financial complexity...

Read More
Leadership & Growth

CG Startups: How to Keep Costs Low While Scaling Operations 

Consumer Goods Startups: How to Keep Costs Low While Scaling Operations  Scaling a consumer goods startup requires a careful balancing...

Read More
Press Releases

Escalon Expands Its Reach: Full Stack Finance and Early Growth Join Forces with Industry Leader 

Escalon Expands Its Reach: Full Stack Finance and Early Growth Join Forces with Industry Leader  In a strategic move that...

Read More
Taxes

Delaware Annual Review: What Series A-C Startups Must Know to Stay Compliant 

Delaware Annual Review: What Series A-C Startups Must Know to Stay Compliant  For startups incorporated in Delaware, staying compliant is...

Read More
Taxes

Tax Planning for Startups: Preparing for Your First Tax Filing

Tax Planning for Startups: Preparing for Your First Tax Filing as a Growing Business  For many startups, the first major...

Read More
Taxes

Unlock Tax Savings with the R&D Tax Credit

As a startup, managing cash flow and minimizing expenses are critical to your business's survival and growth. One often-overlooked opportunity...

Read More
Accounting & Finance

1099 Compliance for Early Stage Startups

1099 Compliance for Early Stage Startups As your startup grows from seed funding to Series A, B, or C, you’ll...

Read More
Accounting & Finance

Meet the Experts at Escalon: Ankush Sharma

Welcome to our new series, Meet the Escalon Experts, where we introduce you to industry leaders shaping your business’s future....

Read More