U.S. Small Businesses Become Pessimistic

• Economic worries develop.

• Pricing power weakens.

The National Federation of Independent Business (NFIB) indicated that its Small Business Optimism Index plummeted 7.8% (-5.3% y/y) to 96.4 during March, the lowest level since October 2016.

Almost all of the readings in the survey declined, some sharply. The net percentage of firms expecting the economy to improve declined to 5% from 22%. The net percentage of firms expecting higher real sales fell to -12%, the lowest level since August 2011. The net percentage reporting that now was a good time to expand the business also declined significantly. 

On the labor front, the net percentage of firms planning to increase employment fell m/m to a four-year low of 9%, down from 21% in February. A lessened 47% of businesses found few or no qualified candidates to fill job openings, versus 54% twelve months earlier.

A lessened net 31% of firms raised worker compensation, down from the expansion high of 37% reached in September 2018. A greatly reduced 16% of firms were planning to raise worker earnings, down from the 26% expansion high reached in November.

Pricing power deteriorated as a net 6% of firms reported raising prices, down from a 19% high in May 2018. A sharply lower net 12% of firms planned to raise average selling prices, less than half the percentage late in 2018.

Credit became slightly harder to get. A net three percent of firms reported trouble obtaining financing versus one percent in February. Sixteen percent of firms reported difficulty near the end of the recession in 2009. A net three percent of firms were not satisfied that their borrowing needs were met in the last three months.

The small business survey inquires about additional issues facing small business. A lessened 24% reported a problem with the quality of labor and a greatly reduced 15% indicated that taxes were the largest problem. Government requirements were worrisome to a steady 13% of respondents. That remained below the September 2013 high of 24%. A lessened seven percent of firms reported the cost of labor as the most significant problem, down from the record 11% in September of last year. Insurance cost/availability concerned a lower 10% of respondents. Competition from large businesses was felt by a steady 10% of businesses as the biggest problem. Poor sales were significant for nine percent of businesses, the most in six months but down from 32% in 2009. Financial & interest rate problems worried just two percent of respondents. Inflation concerned a slightly higher two percent of respondents as the biggest problem.

Roughly 24 million small businesses exist in the U.S. and they create 80% of all new jobs. The index is based 1986=100. 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.