It’s a new year, but the pressures facing small businesses aren’t letting up. According to a new survey by the National Federation of Independent Business (NFIB), small business sentiment, among owners, reached a new low in December as hope dwindles that businesses will see better conditions in the first half of the year.

December marked the 12th consecutive month that the NFIB’s Small Business Optimism Index was below the 49-year average of 98. Nearly two-thirds of business owners (32%) cited inflation as their most concerning problem, and 43% reported that they’d raised their average selling prices as a result.

Although government data shows consumer prices remaining stable in December, sentiment among business owners hasn’t caught up to that reality.

The percentage of business owners reporting positive profit trends was down eight points from November, and among those owners reporting lower profits, 30% blamed increases in the cost of materials, 24% blamed weaker sales, 12% blamed labor costs, and 3% cited higher taxes or regulatory costs.

Labor Shortages Continue

Labor shortages are another issue having a big impact on small businesses in 2023. Although owners’ plans to add positions remain elevated, NFIB found that hiring issues aren’t letting up.

According to the NFIB Index, 41% of business owners say job openings are hard to fill. Fifty-five percent of business owners say they hired or tried to hire in the month of December, and 93% of those who hired or tried to hire reported few or no qualified applicants for the positions they were looking to fill. The pressure is particularly acute among businesses in the construction, manufacturing, and transportation industries.

Seasonally adjusted, 44% of owners said they’ve had to increase compensation. As a result, putting extra pressure on the bottom line.

“Overall, small business owners are not optimistic about 2023 as sales and business conditions are expected to deteriorate,” said NFIB Chief Economist William Dunkelberg in a statement. “Owners are managing several economic uncertainties and persistent inflation, and they continue to make business and operational changes to compensate.”

Recession Concerns Persist

The NFIB’s index would be easy to write off if it was an anomaly — but it isn’t. Survey after survey report similar findings, including JPMorgan Chase’s 2023 annual Business Leaders Outlook survey, released just last week.

According to the JPMorgan Chase survey, the majority of small and midsize businesses expect to see a recession in 2023, and nearly all midsize businesses (91%) are experiencing inflation challenges currently. Forty-five percent of businesses in that survey cited inflation as a top challenge for the year ahead, up from 20% in 2022.

“Inflation has been a challenging headwind impacting businesses of all sizes, across all industries,” explained Ginger Chambless, head of research at JPMorgan Chase Commercial Banking. “While we have seen some encouraging signs that inflation has started to moderate and should cool over 2023, businesses may still want to consider adjustments to strategies, pricing or product mixes to help weather the storm in the near term.”