Inflation Batters U.S. Small Business Optimism in June

Optimism at small U.S. businesses edged down in June as owners were hit by rising food, energy and labor costs, a survey released on Monday showed.

The National Federation of Independent Business index of small business optimism fell 0.1 point in June to 89.2 as more owners cited inflation as their top concern.

Al Behrman

Every time trucks pulled up to the back doors of small businesses to deliver supplies, food, staples, etc., owners would see higher prices and surcharges, said William Dunkelberg, NFIB's chief economist.

The percent of owners citing inflation as their No. 1 problem is up 3 points to 20 percent, the highest reading since 1982, the group said.

"While small business owners heard the Federal Reserve's recession warning and cut back on hiring and spending, they seem not to hear the Fed's declaration that a slow economy will moderate price hikes," Dunkelberg said.

Plans to raise prices rose 4 points to a net seasonally adjusted 36 percent of all owners polled, NFIB said.

"The inflation problem is getting worse as the economy weakens," said Dunkelberg.

Widespread price increases were unable to counter the pressures from "backdoor inflation" and weak sales, NFIB said.

The percentage of all firms reporting higher employee compensation rose 5 points to a net 20 percent, contributing to profit weakness.

The group said there is no evidence that cash flow problems have increased dependence on credit from the banking system.

Regular borrowing activity was reported by 35 percent of the owners, unchanged from May, NFIB said.

"Lower rates clearly are not stimulating capital spending, which has drifted lower as the Fed has cut rates," said Dunkelberg. "More owners expect credit to tighten on Main Street than to get easier in spite of the Fed's expansionary policies."