Small Businesses See Dark Clouds For Economy As Inflation Eats Into Profits And New Taxes Loom

Small business owners are not particularly optimistic going into the final quarter of 2021, chalking up their pessimism to ongoing shortages, inflation and new taxes looming over the horizon.

Pent-up demand after more than 18 months of the COVID-19 pandemic is roaring ahead, pushing up prices and leaving businesses struggling to keep pace with it.

The National Federation of Independent Business (NFIB), one of the largest business associations representing small businesses in the U.S., found that these struggles and fears are chipping away at their members' confidence in the economy. Last month, the NFIB's optimism index slipped one point to 99.1, the lowest reading in six months, while its uncertainty index rose by five points to 74.

Many of the business owners surveyed by NFIB reported that persistent shortages of labor and supplies have impacted their outlook. Fifty-one percent (seasonally adjusted) of all owners reported vacancies but said they could not find workers to fill them, a finding NFIB says is ahead of the 48-year historical average of 22%. Competition with larger companies has been a leading cause for concern while some, particularly in the construction sector, complain that they cannot find many qualified applicants at all.

Filling vacancies at any number of employers has been a challenge throughout the economic recovery. Even executives at large companies have complained about difficulties in hiring workers with some reporting that it has never been more difficult. It is speculated that a combination of fears over COVID-19, generous federal unemployment benefits, and a renewed sense of bargaining power among workers are the main factors behind these hiring woes.

Supply chain disruptions have also played their part. Over 35% of owners said supply chain disruptions have had a significant impact on their business, said NFIB. Another 32% reported a moderate impact of shortages followed by another 21% who reported milder impacts.

Globally, the pandemic is continuing to impact supply chains for many companies that are reliant on a steady flow of supplies from exporters like China or Vietnam. However, temporary factory and shipping yard shutdowns over COVID-19 infections have left lasting supply gaps across the world. Today, delivery networks from air, land and sea are all backed up with excess deliveries to make, but a shortage of workers and vehicles has amplified the pain for small businesses.

Between supply and labor shortages on top of rampant demand, inflation has grown at rates nearly double the Federal Reserve’s benchmark of 2% throughout the summer.

Lastly, the final cog in the changing macroeconomic picture for small businesses is the prospect of new taxes and regulations out of Washington. Congress is currently debating two new infrastructure bills that each contain provisions that will raise taxes for businesses and wealthy individuals.

In the more contentious of the two, a $3.5 trillion social spending package favored by progressive Democrats contains a number of tax raises to help pay for the program. NFIB and other business groups have opposed the bill on these grounds.

The bill is currently hobbled by intra-party disagreements among Democrats, who disagree over the price tag and several of the tax and regulation increases included in it. Republicans universally oppose the bill.