U.S. NFIB Small Business Optimism Declines in February Amid Inflation Concerns

The NFIB Small Business Optimism Index fell to 89.4 in February from 89.9 in January, registering the sixth monthly fall in seven months to the lowest level since May 2023 (also 89.4), according to the February 2024 Small Business Economic Trends survey conducted by the National Federation of Independent Business. The index, while slightly up from a low of 89.0 in April 2023, had been below the 50-year average of 98 for the 26th straight month; it was also down from 90.9 in February 2023 and a high of 102.5 in June 2021. Two of the 10 index components rose, seven fell, and one was unchanged. The NFIB Small Business Uncertainty Index increased to a four-month-high 76 in February from 73 in January; it was up from 71 in February 2023 and a low of 55 in June 2022.

The outlook for business conditions in the next six months remained deeply negative in the latest survey. The net balance of respondents expecting the economy to improve declined to -39% in February, the lowest level since November, from -38% in January, but it was up from -47% in February 2023 and a record-low -61% in June 2022. Expected real sales improved to a net -10% in February after plunging 12 pts. to -16% in January, indicating continued pessimism at a less severe pace. The latest reading was slightly down from -9% in February 2023 but noticeably up from a low of -29% in July 2022. A net -13% of respondents reported higher nominal sales in the past three months, down from -11% in January and December; these numbers were below -6% in February last year.

Plans to make capital outlays decreased to 21% in February from 23% in January, posting the lowest level since a low of 19% in April 2023. The latest reading, the same as a year ago, was also down from a high of 31% in October 2021. Plans to expand the business fell to a net 5% in February, the lowest reading since September, after holding at 8% for three consecutive months; the latest figure, while up from a low of 2% in March 2023, was slightly down from 6% in February last year. Meanwhile, expected credit conditions increased to -6% in February after registering at -8% in January and December; the latest reading was unchanged from February last year but down from a high of -3% in November 2021.

Labor markets remained tight but seemed to ease slightly. Fifty-one percent of respondents reported that qualified workers to fill job openings were hard to find in February, the highest reading since October, following 49% in January and December. The latest figure, however, was down from 54% in February 2023 and a high of 61% in May 2022. A net 12% planned to increase employment in February, the lowest level since May 2020; it was down from 14% in January and 17% in February last year. Notably, 37% reported positions not able to be filled in February, the lowest reading since January 2021, following 39% in January and 40% in December and November. These figures were historically high; however, remaining down from 47% in February 2023 and a high of 51% in May 2022. Overall earnings trends fell to a three-month-low -31% in February from -30% in January; the latest reading was below -23% in February 2023 and significantly down from a high of -5% in June 2021.

On the pricing front, inflation pressures, while trending down, remained at an inflationary level. The net percent raising their average selling prices eased to 21% in February, the lowest reading since January 2021, following 22% in January and 25% in December and November; it was meaningfully down from 38% in February 2023 and a high of 66% in March 2022. The percentage planning to raise prices registered at a five-month-low 30% in February, compared to 33% in January and 25% in February last year; these figures were well below a high of 52% in March 2022.

Wage inflation eased slightly as a net 35% of respondents raised compensation during the last three months, down from 39% reported in the previous survey. It was down from 46% in February 2023 and a peak of 50% in January 2022. A net 19% of firms planned to raise worker compensation in the next three months, the lowest reading since March 2021, compared to 26% in January. The latest figure was down from 23% in February last year and a high of 32% in October 2022.

Inflation continued to be a problem facing small businesses, as reported by 23% of NFIB members in February, up from 20% in January but down from 28% in February 2023 and a peak of 37% in July 2022. After taking over as the single most important problem facing small businesses in the previous survey, the quality of labor was the second important concern with 16% in February, the lowest reading since April 2020, down from 21% in January. Other concerns (in February vs. January) included taxes (13% vs. 16%), the cost of labor (11% vs. 10%), and government requirements (10% vs. 8%).

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.