The National Federation of Independent Business (NFIB) Small Business Optimism Index fell by 2.1 points in February to 100.7.
This is the fourth consecutive month above the 51-year average of 98 and is 4.4 points below its most recent peak of 105.1 in December. The Uncertainty Index rose four points to 104 – the second highest recorded reading.
“Uncertainty is high and rising on Main Street, and for many reasons,” NFIB Chief Economist Bill Dunkelberg said in a release. “Those small business owners expecting better business conditions in the next six months dropped and the percent viewing the current period as a good time to expand fell but remains well above where it was in the fall. Inflation remains a major problem, ranked second behind the top problem, labor quality.”
The net percent of owners expecting the economy to improve fell 10 points from January to a net 37 percent (seasonally adjusted).
Twelve percent (seasonally adjusted) of owners reported that it is a good time to expand their business, down five points from January. This is the largest monthly decrease since April 2020.
Sixteen percent of owners reported that inflation was their single most important problem in operating their business, down two points from January and now just below labor quality as the top issue. The last time it was this low was October 2021.
The net percent of owners raising average selling prices rose 10 points from January to a net 32 percent (seasonally adjusted). This is the largest monthly increase since April 2021, and the third-highest in the survey’s history. The percent of owners lowering their prices is 10 points lower than it was one year ago.
Seasonally adjusted, a net 29 percent plan price hikes in the next three months, up three points from January and the highest reading in 11 months.
Labor costs reported as the single most important problem for business owners rose three points to 12 percent, only one point below the survey’s highest reading of 13 percent reached in December 2021. The last time labor costs ranked this high was in February 2023.
The frequency of reports of positive profit trends was a net negative 24 percent (seasonally adjusted), up one point from January.
A net 2 percent reported their last loan was harder to get than in previous attempts. The last time this reading was this low was in February 2022. Three percent of owners reported that financing and interest rates were their top business problem in February, unchanged from January. A net 4 percent reported paying a higher rate on their most recent loan.
About a quarter (24 percent) of all owners reported borrowing on a regular basis, down three points from January and the lowest since May 2022.
This month, NFIB introduced a new question to the survey to better understand how small business owners evaluated the overall health of their business. Eleven percent of owners reported the health of their business as excellent, 55 percent reported it as good, 27 percent reported it as OK, and 6 percent reported bad.
Fifty-eight percent of owners reported capital outlays in the last six months, unchanged from January.
A net negative 12 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down two points from January. The net percent of owners expecting higher real sales volumes fell six points from January to a net 14 percent (seasonally adjusted). This is the second consecutive month real sales expectations declined after surging from recession levels after the election.
The net percent of owners raising average selling prices rose 10 points from January to a net 32 percent, seasonally adjusted. Sixteen percent of owners reported that inflation was their single most important problem in operating their business, down two points from January and just under labor quality as the top issue. The last time it was this low was October 2021.
Unadjusted, 6 percent of owners reported lower average selling prices and 38 percent reported higher average prices. Price hikes were the most frequent in the finance (53 percent higher, 10 percent lower), wholesale (47 percent higher, 0 percent lower), agriculture (45 percent higher, 12 percent lower), and retail (45 percent higher, 5 percent lower) sectors.
Seasonally adjusted, a net 29 percent plan price hikes, up three points from January. The frequency of reports of positive profit trends was a net negative 24 percent (seasonally adjusted), one point worse than in January.
Among owners reporting lower profits, 40 percent blamed weaker sales, 13 percent cited usual seasonal change, 11 percent cited labor costs, and 9 percent blamed the rise in the cost of materials. For owners reporting higher profits, 52 percent credited sales volumes, 15 percent cited usual seasonal change, and 13 percent cited higher selling prices.