U.S. Small Business Optimism Index Improves in February; Prices Surge

• NFIB Small Business Optimism reverses January decline.

• Economic worries about sales and the economy persist.

• Pricing power strengthens to highest level since 2008.

The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index improved to 95.8 during February after falling to 95.0 in January. The figure remained well below its October reading of 104.0 and its record of 108.8 in August 2018.

The NFIB stated that "Small business owners worked hard in February to overcome unexpected weather conditions along with the ongoing COVID-19 pandemic."

An improved net -19% of respondents felt that the economy would improve, better than January's -23%. A net -8% expected higher real sales in February, less optimistic than in January. Earnings trends remained negative. A lessened net 6% of firms thought that now was a good time to expand, down from 26% twelve months ago. A slightly improved net 18% of firms planned to increase employment, remaining below the recent high of 23% last September.

Fifty-one percent of firms found few or no qualified candidates to fill job openings last month, up from a low of 37% last May. That remained below a high of 57% in August of 2019.

Credit was hard to get by a negligible one percent of respondents, down from April's high of four percent.

Pricing power strengthened. A higher net 25% of firms raised prices in February, up from 11% twelve months earlier. That remained up from the price deflation reported early last year. A greatly increased net 34% were planning last month to raise prices, the most since July 2018. A steady net 25% of firms raised worker compensation while an increased 19% planned to do so over the next three months.

The most important issues for small businesses were lessened quality of labor (24%), taxes (18%), up from 14% twelve months earlier, and government requirements (15%), up from a low 10% in April of last year. The cost of labor troubled a higher nine percent of respondents while competition from large businesses concerned a steady and low eight percent. Inflation worried just two percent of respondents.

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.