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Economy in Brief

U.S. Small Business Optimism Fell Again in February
by Sandy Batten  March 8, 2022

• Optimism fell for second consecutive month to lowest level since January 2021.

• Inflation was a top concern with the net percent raising prices increasing to the highest level on record dating back to 1973.

• Labor-market conditions remained historically very tight.

• Respondents still extremely pessimistic about near-term economic outlook.

The NFIB Small Business Optimism Index fell to 95.7 in February, its lowest reading since January 2021, from 97.1 in January. In February, only one of the index's 10 components increased from January, six declined and three were unchanged. This survey was conducted during the month of February with participants randomly selected from members of the National Federation of Independent Business. Inflation remained a major concern for small businesses as 26% of respondents reported that inflation was their single most important business problem, up four points from January and the highest reading since 1981. The NFIB Uncertainty Index rose slightly to 73 in February, its highest reading in five months, from 71 in January.

Inflation pressures remain intense with a net 68% of respondents raising average selling prices in February, up from 61% in January and reaching the highest level on record dating back to 1973. A little more encouraging, the percentage planning to raise prices, while remaining historically very elevated, slipped to a net 46% in February, the third consecutive monthly decline, from 47% in January.

Respondents remained quite pessimistic over the near-term outlook. The net balance of respondents expecting the economy to improve over the next six months fell to -35% in February from -33 in January. The February reading was only three points above the record low of -38 recorded last November. Also, sales were expected to deteriorate further. Those expecting higher real sales slumped to a net -6% in February from -3% in January and +3% in December. Plans to expand the business fell again, to a net 8% in February from 9% in January and 11% in December. The net percent of firms planning to make capital expenditures fell to 27% in February from 29% in January.

Employment readings pointed to slightly tighter labor-market conditions though wage pressures eased a bit in February. The net balance of firms planning to increase employment fell seven points to 19%, its lowest reading since February 2021, from 26% in January. Some of the decline in expected employment may reflect firms' continued difficulty in finding qualified applicants. The index measuring few or no qualified applicants rose to a net 57% from 55%. And the percent of firms with positions not able to fill now edged up to a net 48% in February from 47%.

Worker compensation net balances eased a bit in February. The percentage of firms raising worker compensation fell five points to a net 45% in February from a record net 50% in January, while the percentage planning to raise compensation edged down to a net 26% in February from 27% in January. The record for this series is 32% recorded in October, November and December of last year. Twenty-two percent of respondents cited the quality of labor as their most important problem, down from 23% in January and the third consecutive monthly decline, while the percent reporting labor costs as their most important problem was unchanged at 11% in February.

Roughly 24 million small businesses exist in the U.S. and they create 80% of all new jobs. The typical NFIB member employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver's SURVEYS database.

National Federation of Independent Business (SA, Net % of Firms) Feb Jan Dec Feb '21 2021 2020 2019
Small Business Optimism Index (1986=100) 95.7 97.1 98.9 95.8 98.8 99.6 103.0
Firms Expecting Economy to Improve -35 -33 -35 -19 -24 20 13
Firms Expecting Higher Real Sales -6 -3 3 -8 0 1 18
Firms Reporting Now Is a Good Time to Expand the Business 8 9 11 6 11 13 25
Firms Planning to Increase Employment 19 26 28 18 25 16 19
Firms With Few or No Qualified Applicants for Job Openings (%) 57 55 57 51 55 46 52
Earnings Trends -17 -17 -14 -11 -13 -16 -5
Firms Reporting that Credit Was Harder to Get 2 2 4 1 2 3 4
Firms Raising Average Selling Prices 68 61 57 25 42 5 13
Firms Raising Worker Compensation 45 50 48 25 37 23 31
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