U.S. NFIB Small Business Optimism Index Declines in January; Uncertainty Rebounds

The NFIB Small Business Optimism Index declined 2.2% to 102.8 during January after rising 3.3% to an unrevised 105.1 in December and surging 8.5% to 101.7 in November, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. The index rose 14.3% y/y, but seven of the 10 index components fell last month. The NFIB Small Business Uncertainty Index rebounded 16.3% (37.0% y/y) in January to 100 after falling sharply in each of the prior two months. It stood higher than its recent low of 65 in November 2023.

The outlook for business conditions deteriorated in the latest survey. The net balance of respondents expecting the economy to improve slipped to 47% last month from 52% in December, but remained up versus a record-low of -61% in June 2022. Expected higher real sales fell to a net 20% after surging to 22% in December from 14% in November. The latest reading has increased from a low of -29% in July 2022. A lessened 17% of respondents indicated that now was a good time to expand the business. The figure nevertheless remained up from 4% in September.

Plans to make capital outlays plummeted to 20% of firms, the lowest in nine months, after slipping to 27% in December. Plans to add to inventories declined to none of the survey respondents from an elevated six percent in December. The index of expected credit conditions fell to -4% last month, but remained up from a low of -11 in November 2023.

On the labor front, a lessened 47% of businesses reported few or no qualified workers to fill job openings in January, after rising to 56% in August of last year. These readings were below a high of 61% in May 2022. On balance, 18% respondents planned to increase employment in January after the 19% in December.

The net percent of firms reporting higher earnings continued to improve last month, after rising sharply in November. The figure rose to -25% from -26% in December, up from the August low of -37.

On the pricing front, the net percent raising their average selling prices eased to 22% last month from 24% in December, below the recent high of 28% in March of 2024. The percentage planning to raise prices declined to 26% in January from 28% in both of the prior two months.

Worker compensation rose, illustrated by a net 33% of respondents lifting compensation during the last three months versus 29% in the last survey. The net number of small businesses raising compensation remained below the 38% reported in the June survey. Compensation peaked at 50% of firms in January 2022. A greatly lessened net 20% of firms plan to raise worker compensation in the next three months, below November’s high of 28%.

Inflation continued to be the single most important issue facing small businesses, as reported by 18% of NFIB members in January. That was reduced from 25% six months earlier. The quality of labor also was reported by 18% of respondents as the most important concern. Other major concerns were taxes (17%), government requirements (10%), and the cost of labor (9%).

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.

Semiannual Monetary Policy Report to the Congress by Federal Reserve Chair Jerome H. Powell is available here.