Workforce expansion hits 4-year low; small business confidence slides [WSJ/Vistage July 2024]

While uncertainty and inflation have been themes that small businesses have been managing, the increased costs for labor may be thwarting small businesses’ plans for adding personnel and investing in their business. According to 412 small business leaders surveyed in July, just 43% indicate they plan to expand their workforce, the lowest percentage since June 2020. Plans among small businesses to reduce their workforce have held at 8%, while those planning to keep their workforce the same reached 49% in July.

Small businesses are similarly conservative with their plans for fixed investments with just 28% planning to increase investments over the next year, a 17-month low — additionally, 16% plan to decrease fixed investments, which is slightly above the 12-month average.

The fall in investment and workforce expansion plans over the next year led to a decline in the WSJ/Vistage Small Business CEO Confidence Index, dropping to a 7-month low in July of 85.9.

Strategies to offset labor costs

Analysis of previous surveys has shown that labor costs have affected almost 60% of small businesses. Many small businesses reported passing on the costs through price increases, while others absorbed the costs, affecting their profitability. As Megan Torrance, CEO of TorranceLearning in Ann Arbor, Michigan shares, “We are passing some of this along to our customers, while also absorbing some of the increased costs.”

Other small businesses focus on driving productivity to offset increased labor costs.

“We’re increasing our capital expenditure on operating efficiencies utilizing robotics and automation,” says Tom Hilaris, CEO of Ergoseal in Carol Stream, Illinois. “We need to do more without increasing our labor force.”

Rising costs quantified

But labor costs are not just wages; benefits are part of that overall expense. Last month’s survey found that across all types of insurance, costs for health insurance rose the most significantly.

Our July survey quantified all increases in various costs, revealing that some of the steepest cost increases have come from insurance, with 42% of small businesses reporting greater than 10% increases in insurance. However, more small companies still report that labor costs have increased compared to last year.

Eric Flowers, President and CEO of Ramsell Corporation in Concord, California, shares that they are “exploring ways to more cost-effectively pay for employee benefits without shifting the burden to employees while maintaining comparable benefit options.”

July highlights:

The July WSJ/Vistage Small Business CEO Confidence Index was calculated from a survey of CEOs and other key leaders of small and midsize businesses in the field July 8-15, 2024; the results reflect insights from 412 respondents that represent companies with $1-20 million in annual revenues.

• Current Economy: 18% of small businesses believe the economy has improved compared to last year. More than twice as many (38%) think it has worsened, a 4-point increase from last month.
• Future Economy: Just 21% of small business leaders expect the economy to improve over the next year; one quarter expect it to worsen.
• Revenue projections: The percentage of small businesses who expect increased revenues in the next 12 months slides to 57%, reversing the increase from last month.
• Profitability projections: 46% of small businesses expect increased profits in the next 12 months, while 20% expect profits to decline.
• Fixed investment plans: 28% of small businesses plan to increase fixed investments, while just 16% plan to reduce spending in the next 12 months.
• Workforce expansion plans: Workforce expansion plans are on hold as the percentage of small businesses that plan to increase the workforce slips to 43%, a 9-point decrease.

To explore the full July 2024 WSJ/Vistage Small Business dataset, visit our data center or download the infographic.

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