U.S. NFIB Small Business Optimism Recedes to a Four-Month Low in February Amid Uncertainty

The NFIB Small Business Optimism Index declined to 100.7 in February, the lowest level since October, after a 2.3-point drop to 102.8 in January, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. This was the fourth straight month that the index was above the 51-year average of 98. The index was down from its recent peak of 105.1 in December but up from its recent low of 88.5 in March 2024 and 89.4 in February 2024. Seven of the 10 index components fell and three increased. The NFIB Small Business Uncertainty Index rose to 104 in February on top of a 14-point jump to 100 in January, registering the second highest reading on record. The index, while down from its record high of 110 in October, was well above its recent low of 65 in November 2023.

The outlook for business conditions in the next six months remained positive for the fourth consecutive month in the latest survey. The net balance of respondents expecting the economy to improve fell to 37% in February, the lowest level since November, after a 5-point drop to 47% in January; however, having remained significantly above a record low of -61% in June 2022. Expected real sales dropped to a net 14% in February after a 2-point decline to 20% in January, posting the fourth successive positive reading and the lowest since November. The latest figure was up from a low of -21% in May 2023 and a low of -29% in July 2022. A net -12% of respondents reported higher nominal sales in the past three months, up from -14% in January and registering the highest reading since June 2024. The latest result, however, was below the most recent positive reading of 1% in May 2022 and a peak of 9% in June 2021.

Plans to make capital outlays dipped to 19% in February, the lowest level since September, following a seven-point decline to 20% in January. These numbers were down from its recent high of 28% in November and a high of 31% in October 2021. Plans to expand the business fell to 12% in February, the lowest reading since October, after a three-point decline to 17% in January; the latest figure was down from its most recent high of 20% in December but up from a low of 2% in March 2023. Meanwhile, expected credit conditions edged up to -3% in February after a two-point decline to -4% in January; these readings were above a low of -11% in November 2023.

On the labor front, forty-eight percent of respondents reported that qualified workers to fill job openings were hard to find in February, slightly up from 47% in January. These numbers were below a high of 57% in September 2023, a high of 61% in May 2022, and a peak of 62% in September 2021. A net 15% planned to increase employment in February, down from 18% in January; it was below a high of 26% in May 2022 and a peak of 32% in August 2021. Notably, 38% reported positions not able to be filled in February, up from 35% in January and the highest reading since August; these figures remained below a high of 51% in May 2022.

Overall earnings trends had remained in negative territory since December 2019. The figure inched up to -24% in February, still a poor reading, following a one-point increase to -25% in January. These readings were up from a low of -37% in August; nevertheless, having remained below a high of -18% in March 2023 and a high of -5% in June 2021.

On the pricing front, inflation pressures, while trending down, remained at an inflationary level. The net percent of firms raising their average selling prices jumped 10 points to 32% in February after a two-point decline to 22% in January, posting the biggest m/m increase since April 2021 and the highest reading since May 2023. These numbers were up from 21% in February 2024 but well below a high of 66% in March 2022. The percentage planning to raise prices rose to 29% in February, the highest reading since March 2024, following a two-point decline to 26% in January; these figures were below a high of 33% in March 2024 and a high of 52% in March 2022.

Wage inflation remained relatively high in the February survey. A net 33% of respondents raised compensation during the last three months, unchanged from 33% reported in the January survey and registering the highest reading since August. It was down from a high of 46% in February 2023 and a peak of 50% in January 2022. A net 18% of firms planned to raise worker compensation in the next three months, down from 20% reported in January and the lowest reading since July 2024; these numbers were below a high of 28% in November, a high of 30% in November 2023, and a high of 32% in October 2022.

Inflation continued to be a problem facing small businesses, as reported by 16% of NFIB members in February. The February figure was down from 18% in January and a peak of 37% in July 2022. However, the quality of labor (19% in February vs. 18% in January) had taken over as the single most important problem facing small businesses. Other concerns (in February vs. January) included taxes (16% vs. 17%), the cost of labor (12% vs. 9%), poor sales (9% vs. 9%), insurance cost/availability (7% vs. 7%), competition from large businesses (7% vs. 5%), and government requirements (6% vs. 10%).

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.