U.S. NFIB Small Business Optimism Declines to an Eight-Month Low in January

The NFIB Small Business Optimism Index fell to 89.9 in January, the fifth monthly fall in six months to the lowest level since May 2023, from 91.9 in December, according to the January 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 25th straight month; it was also down from 90.3 in January 2023 and a high of 102.5 in June 2021. Two of the 10 index components rose, six fell, and two were unchanged. The NFIB Small Business Uncertainty Index increased to a three-month-high 73 in January after rebounding to 71 in December; nevertheless, declining from 76 in January last year.

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 -38% in January from -36% in December, but it was up from -45% in January 2023 and a record-low -61% in June 2022. Expected real sales plunged to a net -16% in January, the lowest level since May 2023, from -4% in December, indicating continued pessimism. The latest reading was down from -14% in January 2023 but up from a low of -29% in July 2022. A net -11% of respondents reported higher nominal sales in the past three months, unchanged from December; that was below -4% in January last year.

Plans to make capital outlays fell back to 23% in January from 24% in December. The latest reading, while up from a low of 19% in April 2023 and 21% in January 2023, was down from a high of 31% in October 2021. Meanwhile, plans to expand the business held steady at a net 8% in January for the third consecutive month; the latest figure was up from a low of 2% in March 2023 and 7% in January last year. Expected credit conditions registered at -8% in January, unchanged from the previous month and January last year; however, the latest reading was down from a high of -3% in November 2021.

Labor markets remained tight with 49% of respondents reporting that qualified workers to fill job openings were hard to find in January, unchanged from December. The latest figure was down from 52% in January 2023 and a high of 61% in May 2022. A net 14% planned to increase employment in January, the lowest level since May 2020; it was down from 16% in December and 19% in January last year. Notably, 39% reported positions not able to be filled in January following 40% in December and November, remaining historically high; however, it was down from 45% in January 2023 and a high of 51% in May 2022. Overall earnings trends dropped to -30% in January after increasing to -25% in December; the latest reading was below -26% in January 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 22% in January, the lowest reading since January 2021, after registering at 25% in December and November; it was meaningfully down from 42% in January 2023 and a high of 66% in March 2022. The percentage planning to raise prices increased to 33% in January from 32% in December, but it was down from 29% in January last year and well below a high of 52% in March 2022.

Wage inflation also remained high as a net 39% of respondents raised compensation during the last three months, up from 36% reported in the August-December 2023 surveys; nevertheless, it was down from 46% in January 2023 and a peak of 50% in January 2022. A net 26% of firms planned to raise worker compensation in the next three months, compared to 29% in December. The latest figure was up from 22% in January last year but down from a high of 32% in October 2022.

Inflation continued to be a problem facing small businesses, as reported by 20% of NFIB members in January, down from 23% in December, 26% in January 2023, and a peak of 37% in July 2022. However, the quality of labor (21% in January vs. 20% in December) had taken over as the single most important problem facing small businesses. Other concerns (in January vs. December) included taxes (16% vs. 17%), the cost of labor (10% vs. 9%), and government requirements (8% vs. 7%).

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.