U.S. small-business confidence dropped to the lowest level in nearly 9 1/2 years in June amid concerns about inflation, but demand for labor remained solid as businesses continued to grow their operations, a survey showed on Tuesday.
The National Federation of Independent Business (NFIB) said its Small Business Optimism Index fell 3.6 points last month to 89.5, the lowest level since January 2013. Thirty-four percent of owners said that inflation was their biggest single problem in running their business, an increase of six points from May and the highest level since the fourth quarter of 1980.
Consumer prices are surging, driven by snarled global supply chains and massive fiscal stimuli from governments early in the COVID-19 pandemic, with the annual U.S. CPI increasing at a rate last seen in the early 1980s. The situation has been worsened by Russia's dragging war against Ukraine, which has caused a spike in food and fuel prices across the world.
Soaring inflation has forced the Federal Reserve to adopt an aggressive monetary policy, putting the economy on a recession watch. The U.S. central bank has raised its policy rate by 150 basis points since March. It is expected to hike its overnight interest rate by another 75 basis points this month.
The higher borrowing costs and worries about a recession have not slowed demand for labor.
The NFIB survey showed 50% of owners reported job openings they could not fill in June, down a point from May's reading, which tied the previous record high. The vacancies were for both skilled and unskilled labor, with worker shortages most severe in the construction, manufacturing and services industries.
"The persistence of record high levels of unfilled openings indicates that owners are still seeing opportunities to grow their business, in spite of their negative outlook for the future," said NFIB chief economist William Dunkelberg.
Solid demand for labor, which was underscored by stronger-than-expected job growth in June, raises hope that any economic downturn will be short and mild.
Despite concerns about an inventory bloat, small businesses are not done restocking, with the survey finding that "a significant amount of what they want sits frustratingly just off the coasts or in containers waiting for transport."
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