Dive Brief:
- Optimism among small businesses fell last month amid persistent inflation, flagging sales and disruptions to supply chains, the National Federation of Independent Business said Tuesday.
- Small businesses rank labor quality and availability as their No. 1 problem and consider inflation and taxes tied as their second worst challenges, the NFIB said. Nearly half of small businesses (47%) report few or no qualified applicants for the jobs they want to fill.
- Despite concerns about the labor market, “costs remain the bigger story,” Mark Valentino, head of business banking at Citizens, said in a note. “Gas prices are up more than 30% since the Iran war began, and new retaliatory tariffs from Canada go into effect today, touching everyday goods that many small businesses buy and sell.”
Dive Insight:
Job market health is also a top concern among U.S. consumers, the Federal Reserve Bank of New York said Tuesday, but for reasons that differ from those bedevilling small businesses.
Consumers see 44.4% odds that the unemployment rate will be higher in August 2027, the highest level since April 2020, the New York Fed found in a monthly survey.
The gloomy view has spread among households even though U.S. employers beat forecasts and added 162,000 jobs last month, according to Labor Department data released Friday. Unemployment held steady at 4.1%, and total employment for June and July was revised up by a total of 55,000 jobs.
Consumers have a more favorable view of their own job security, with their perceived odds of losing their jobs during the next 12 months falling 0.4 percentage point to 13.8%, the lowest level since February, the New York Fed said.
Fed policymakers say the outlook for the labor market is comparatively bright. Fed Chair Kevin Warsh and Fed Governor Christopher Waller have recently expressed more concern about inflation, which has exceeded the central bank’s 2% target for more than five years.
The U.S.-Iran war “has escalated the cost of energy, which raises the price of almost everything,” the NFIB said.
Thirty-one percent of small businesses “reported raising their average selling prices and as about as many plan to do so in the coming months,” the federation said. “This will not help the Fed get inflation to its 2% goal.”
Fed officials closely track inflation expectations because price pressures often rise when businesses and consumers lose confidence in price stability.
Median inflation expectations among consumers at the one-year- and five-year-ahead horizons were unchanged last month at 3.6% and 3%, respectively, the New York Fed said. On a three-year-ahead horizon, inflation expectations fell 0.1 percentage point to 3.2%.
The view of households toward commodity prices grew more bleak last month, the New York Fed said, as the U.S.-Iran war pushed up energy costs.
Consumers’ median year-ahead expectations for price changes rose by 1.7 percentage points to 4.6% for gas, by 0.3 percentage point to 5.3% for food and by 0.2 percentage point to 9.1% for medical care, the New York Fed said.
Energy prices have surged during the past month, with Brent crude oil futures rising 17.7% to $98.38 per barrel amid sporadic fighting between U.S. and Iranian forces.
