‘It is a very tough environment for many small business owners,’ expert says

NFIB Executive Director of Research Holly Wade joins Yahoo Finance Live to discuss the small business optimism index, rising inflation, and how small businesses are dealing with tightening credit conditions.

Video Transcript

AUSTAN GOOLSBEE: I don't know if it's full blown credit crunch, but it's certainly credit tightening you see from talking to the lending officers or our business contacts out here in the Midwest. That will slow the economy. And we absolutely should take that into account when we're setting monetary policy. We have to figure out how much of the work of monetary policy is getting done already through the credit conditions.

RACHELLE AKUFFO: Chicago Fed President Austan Goolsbee speaking yesterday about the Fed's ongoing inflation fight. Those tightening credit conditions putting the squeeze on small business owners, in particular. Holly Wade, NFIB Executive Director of Research, joins us now with the latest Small Business Optimism index. Good to see you, Holly. So when we're looking at some of the key findings from this study, there seems to be a disconnect between Wall Street and Main Street and how small businesses are faring and feeling.

HOLLY WADE: Yes, a little bit of a disconnect, as you said. So we're seeing a bit of deterioration in our optimism index. And it is as low as it's been since January 2013.

And the primary factors in this month, or in April's decline in the optimism index, were sales expectations, current inventory satisfaction, and earnings trends. So those were the three main contributors to our declining index. But employment is still strong. We still have very elevated levels of unfilled job openings in the small business sector.

RACHELLE AKUFFO: I mean, look at it-- looking at it from the chief economist William Dunkelberg is saying, of those hiring or trying to hire, 92% of owners required few or no qualified applications for the positions they were trying to fill. When you have it at 92%, what does that do in terms of the day to day business decisions that some of these companies are having to make?

HOLLY WADE: Certainly. It's a very challenging environment for a lot of small business owners who have those unfilled job openings to operate. They're losing out on sales opportunities. They're trying to adjust business operations to accommodate.

And many of them are just having to spend a lot more time in their business, filling in for those positions that they aren't able to find applicants to interview and to fill the position. So it is a very tough environment for many small business owners out there currently.

RACHELLE AKUFFO: And which types of small businesses are having the toughest time attracting talent?

HOLLY WADE: So we're finding those in the construction industry, in services, in transportation. Those are those industries that are having the most difficult time finding applicants, filling those open positions. And that's been about the theme for the last year or so as far as the industry is struggling the most in that capacity. But it is pretty prevalent across most industries that we've found in our survey.

RACHELLE AKUFFO: And in terms of-- trying to compete in terms of compensation with some of these larger companies that can perhaps offer bigger benefits here, said a net 40% reported raising compensation. Now, that's actually down 2 points from March and down 10 points from below the 49-year record high. How are they faring in terms of trying to compete with some of these bigger companies while, perhaps, having to pull back on compensation just because the costs are too high?

HOLLY WADE: Sure. That has been one of the bigger struggles for many small businesses is trying to compete on the compensation front in attracting applicants to fill those open positions. Many still, historically high levels, are increasing compensation, planning to increase compensation.

As you said, it has receded a bit from its highest levels that we've seen in the 49-year history of the survey. But they're still having to compete, especially in those more challenging areas, as I mentioned-- construction and services. But it's also to retain their current employees and compete on that level.

And so the compensation front is a challenge. They are trying to be as creative as possible in putting together very attractive compensation packages. But it is difficult for small businesses to compete on that front, especially when it comes to, say, the cost of health insurance and some of those larger ticket items in a compensation package for small business owners to compete with their larger counterparts.

RACHELLE AKUFFO: And with, obviously, the threat of recession looming as well, a lot of people wondering if that means that people will stop, perhaps, pouring more into the job market as things do become a little bit too tight. Is that something that you expect some of these smaller businesses to benefit from?

HOLLY WADE: Well, as they can find more applicants to interview for those positions, the better. It's certainly a concern, though, for small business owners looking in the next six months, whether we'll see a recession or that sales opportunities will slow up significantly. They're concerned about those elements to it.

And that's part of the challenge in their decision in how much to increase compensation and how forcefully they look to fill those open positions. They don't particularly see the next six months as a good environment for business conditions. And very few are thinking that it's a good time to expand their business, whether that's because of inflation pressures, or because of a tight labor market, or, again, kind of a pending fear of whether we're headed towards a recession and those fears of slowing up sales opportunities.

RACHELLE AKUFFO: And certainly tighter lending conditions from the banking fallout adding to the headaches as well. A big thank you there to Holly Wade, NFIB Executive Director of Research. Thank you for joining me today.