NFIB Small Business Optimism Deteriorates in March

The Small Business Optimism Index from the National Federation of Independent Business eased to 88.5 during March from 89.4 in February. The reading was below the recent high of 91.9 in December. Survey respondents became less comfortable with the outlook. The Business Uncertainty Index rose to 77 from 76 in February. It was the highest level in six months and up from a November low of 65.

The net balance expecting economic improvement rose slightly to -36% in March from -39% in February. The net balance expecting higher real sales in six months, however, declined to -18%, its lowest level since May of last year. The balance reporting that now was a good time to expand the business fell to 4%, down from 8% two months earlier, though it was increased from a March 2023 low of 2%. Earnings trends improved modestly but expected credit conditions deteriorated after a sharp improvement from November of last year to this past February.

The labor market readings were similarly mixed in March. The reading for current job openings held steady at 37%. It was the weakest since January 2021 and stood below the May 2022 high of 51%. The reading for the percent of firms planning to raise employment fell to 11% and remained well below the high of 32% in August 2021. The percent of firms reporting few or no qualified applicants for job openings dropped sharply to 48% after increasing to 51% in February. It remained well below the September 2021 high of 62%. The quality of labor was considered the single most important problem by an increased 18% of firms, up from 16% in February, but well below the November 2023 high of 24.

The percent of firms planning to add to inventories held steady at -7% after falling sharply from zero in October. That figure compared to a low of -8% in January 2023. A lessened percentage of respondents indicated that inventories were too low.

Labor compensation pressures remained muted. The March reading showed that a net 38% of respondents increased compensation over the last three months, down from 50% in January of 2022. A slightly higher net 21% expect to raise compensation in the next three months. The cost of labor in March was viewed as the biggest problem by a lessened 10% of respondents but that was increased from a low of 8% in November of last year.

Inflation pressures moved higher in March. The net balance of firms increasing their average selling prices increased to 28% from 21% in February. This figure remained down from 37% twelve months earlier and a March 2022 high of 66%. Similarly, the net balance planning to increase selling prices in the next three months rose to 33% from an April 2023 low of 21%. Inflation was viewed as the single most important problem by an increased 25% of respondents, up from a 20% January low and the highest since May 2023.

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s SURVEYS database.