NFIB’s Optimism Index still running well below 50-year average

The National Federation of Independent Business’ Small Business Optimism Index decreased in February to 89.4, marking the 26th consecutive month below the 50-year average of 98. Twenty-three percent of small-business owners reported that inflation was their single most important business problem in operating their business, up three points from January and replacing labor quality as the top problem.

“While inflation pressures have eased since peaking in 2021, small-business owners are still managing the elevated costs of higher prices and interest rates,” said NFIB Chief Economist Bill Dunkelberg. “The labor market has also eased slightly as small-business owners are having an easier time attracting and retaining employees.”

Key findings of the February report include:

• Reports of labor quality as the single most important problem for business owners decreased five points to 16 percent, the lowest reading since April 2020.
• The net percent of owners who expect real sales to be higher increased six points from January to a net negative 10 percent (seasonally adjusted), an improvement from the previous month.
• Small-business owners’ plans to fill open positions continue to slow, with a seasonally adjusted net 12 percent planning to create new jobs in the next three months, the lowest level since May 2020.
• Thirty-seven percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, down two points from January and the lowest reading since January 2021.
• The net percent of owners raising average selling prices declined one point from January to a net 21 percent (seasonally adjusted), the lowest reading since January 2021.

As reported in NFIB’s monthly jobs report, 56 percent of owners reported hiring or trying to hire in February. Twenty-five percent of owners reported few qualified applicants for their open positions and 26 percent reported none.

Fifty-four percent of owners reported capital outlays in the past six months, down five points from January. Of those making expenditures, 35 percent reported spending on new equipment, 23 percent acquired vehicles and 15 percent improved or expanded facilities. Twelve percent spent money on new fixtures and furniture and 6 percent acquired new buildings or land for expansion. Twenty-one percent (seasonally adjusted) plan capital outlays in the next few months.

A net negative 13 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months. The net percent of owners expecting higher real sales volumes improved six points to a seasonally adjusted net negative 10 percent.

The net percent of owners reporting inventory gains decreased one point to a net negative 1 percent (seasonally adjusted). Thirteen percent reported increases in stocks and 19 percent reported reductions. A net negative 4 percent (seasonally adjusted) of owners viewed current inventory stocks as “too low” in February.

Eleven percent cited labor costs as their top business problem, up one point from January and only two points below the highest reading of 13 percent reached in December 2021. Sixteen percent said that labor quality was their top business problem, the lowest reading since April 2020.

The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since the fourth quarter of 1973 and monthly surveys since 1986. Survey respondents are randomly drawn from NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in February.