Labor Quality Remains the Biggest Challenge

The quality of available labor was identified as the single most important problem by 26% of surveyed small businesses in September, marking the third consecutive month in which it ranked first. The share increased by 3 percentage points, reinforcing the difficulty some employers face in finding workers with the skills and experience needed to operate effectively.

Labor quality differs from the direct cost of employment. While wages and benefits affect how much businesses pay their employees, labor quality concerns the availability and suitability of workers. Businesses may therefore face hiring challenges even when they are willing to offer competitive compensation.

For smaller companies, these difficulties can have a direct effect on operating capacity, productivity and customer service. When qualified workers are difficult to find, businesses may struggle to expand operations or meet customer demand efficiently.

Inflation and Weak Sales Add to Business Pressure

Inflation ranked second among the problems shown in the September survey, accounting for approximately 20% of responses. Its continued prominence suggests that operating costs remain an important consideration for small-business owners, even as companies contend with other pressures.

Higher costs for supplies, services and labor can reduce profit margins when businesses cannot pass the increases on to customers. Smaller firms may have less negotiating power with suppliers and fewer resources to absorb sustained cost increases than larger competitors.

Poor sales ranked alongside taxes as another major concern, with each representing approximately 11% in the chart. The presence of weak sales among the leading problems points to a challenge on the demand side as well as the cost side. Businesses facing subdued customer demand may find it harder to increase prices without risking further pressure on sales volumes.

Taxes, government regulation, insurance costs and competition from large businesses also featured in the survey. Together, these concerns illustrate the range of operational and financial pressures confronting independent businesses.

What the Survey Means for the U.S. Economy

Small businesses play an important role in employment and local economic activity, making their reported challenges relevant beyond individual companies. Persistent difficulty finding qualified workers can constrain hiring and expansion, while elevated costs can affect pricing decisions, profitability and investment.

For investors, the survey offers a perspective on business conditions that may not be fully captured by large-company earnings reports. Small firms can be particularly sensitive to changes in labor availability, financing costs and consumer demand.

For U.S. and Israeli investors monitoring the American economy, the September findings highlight the importance of tracking labor conditions alongside inflation and spending trends. The survey does not, by itself, establish that economic growth is weakening, but it identifies areas where business owners continue to experience pressure.

The next readings will help determine whether labor quality remains the dominant concern and whether inflation and poor sales become more or less significant. Changes in these categories could provide useful context for assessing small-business hiring, investment and operating decisions in the months ahead.