The National Federation of Independent Business (NFIB) Small Business Optimism Index reading in December marked the 24th consecutive month below the 50-year average of 98. According to the index, 23% of small business owners reported that inflation was the top concern, replacing labor quality.

Holly Wade, NFIB Director of Research, joins Yahoo Finance to discuss the index reading and give insight into how small business owners are feeling about the economy and how it may impact the broader market.

Wade explains some of the stress higher inflation has put on small businesses, which in turn gets passed to consumers: "We've seen in our survey that the first hit on inflation pressures are business owners' earnings, and so earnings have been deteriorating for a while now... so the first hit, are business owners earnings, and then they pass along those costs to their customers of their goods and services that they're selling. But that process takes a bit."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

JOSH LIPTON: Now with earnings season underway, we're checking in on how folks are feeling on Main Street. The answer, not great. Small business optimism came in below average in December for the 24th straight month. That's according to the National Federation of Independent Business.

Here with more on what's weighing on America's small businesses, Holly Wade, NFIB Research Center Executive Director. Holly, it is great to have you on the show. Maybe just start there, Holly, kind of the 30,000-foot view. How are small business owners feeling right now? Can you walk us through what you're seeing in the surveys?

HOLLY WADE: Sure. So thanks for having me. And small business owners are fairly pessimistic, still related to outlook on business conditions in the next six months and expansion opportunities. We've seen the same environment for about the last year and a half. And as you mentioned, our index that we have been collecting this data for 50 years now has been under the 50-year average of 98 for about two years now and has been at recessionary levels, especially over the last year with the challenging environment that they're having to operate in, with high inflation rates and still a tight labor market.

JULIE HYMAN: So when we talk about inflation, Holly, obviously, we were talking about now inflation decelerating. But if you look at prices now versus where they were three years ago, there's still a lot higher than then. So is that why inflation is so much still on the minds of these folks? And how have they adjusted?

HOLLY WADE: Absolutely. So we've seen in our survey that the first hit on inflation pressures are business owners earnings. And so earnings have been deteriorating for a while now. And we've seen a bit of improvement on that end. So the first hit are business owners earnings. And then they pass along those costs to their customers of their goods and services that they're selling.

But that process takes a bit. They're also doing all of the things that you would expect internally and trying to increase productivity within their business, absorbing those costs in other ways. But when it's related to the increased costs of their supplies and inventory, compensation costs, which are still struggle for them in retaining current employees and attracting applicants for those open positions that we're still seeing a very high levels. And then also, for some, that increase in financing costs has become quite troublesome for them in again absorbing those costs and figuring out a way to remain competitive and passing along those costs to their customers.

JOSH LIPTON: What about, Holly, jobs right now? What are small business owners doing? Are they are they hiring? Are they reducing headcount? What are the trends you're seeing?

HOLLY WADE: We're still seeing very high levels-- historically high levels of job openings in the small business sector. They are trying to hire and fill those positions, where they're able to have applicants that meet kind of those minimum qualifications. They're certainly willing still to train in-house. That does take up a lot of resources among small business owners in training and skilling up some of the applicants that they're looking to fill those positions. So that's still very strong.

It's frustrating for a lot of owners who have had trouble over the last-- well, since the beginning of the pandemic and filling those positions. And this has been one of their main challenges. Still, one in five small business owners are saying that it is their number one problem facing their business is the labor market.