The NFIB Small Business Optimism Index increased by a meager 0.4 points in August (top graph) as small business owners continue to contend with both rising input costs and labor challenges. Customer demand continued to be strong, yet the share of small businesses that raised prices jumped to the highest levels in over 40 years in an attempt to keep higher costs from eroding the bottom line. Higher labor costs have been a driving force behind these price hikes, as a shortage of labor has led to a record-high 41% of small businesses raising compensation (bottom graph). Small businesses are doing their best to pass on these increased labor costs to their customers, but unless the end of the enhanced federal unemployment benefits causes a sudden improvement in the shortage of labor, this will continue to function as another upward force on inflation.
