NFIB Small Business Optimism Index Edged Up in February

The NFIB Small Business Optimism Index edged up to 90.9 in February from 90.3 in January and 89.8 in December, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. This was the fourteenth consecutive month that the index has been below its 49-year average of 98. Five of the index’s 10 components increased in February while four fell and one was unchanged. The NFIB Small Business Uncertainty Index fell to 71 in February from 76 in January.

After having improved in January, the outlook for business conditions in the next six months deteriorated in February with the net balance expecting the economy to improve falling to -47% from -45% in January. By contrast, expected sales improved for the first time in three months, though the net balance remained in negative territory at -9 versus -14 in January.

Inflation pressures continued to abate in February but remain elevated by historical standards. The net balance of firms increasing their average selling price fell to 38% in February, the lowest reading since April 2021, from 42% in January. The net balance expecting to increase their selling price in the next three months slipped to 25% from 29% in January. Notwithstanding these declines, inflation remained the single most important problem faced by small businesses in February, a position it has held since February 2022.

The labor market remained tight for small businesses. Sixty percent of respondents reported hiring or trying to hire in February. Of those hiring or trying to hire, 90% reported few or no qualified applicants for their open positions. More generally, 54% of respondents reported few or no qualified applicants for job openings, up from 52% in January, while 47% reported positions that were not able to fill at present, up from 45% in January. Accordingly, upward pressure on compensation remained elevated. A net 46% of respondents reporting increasing worker compensation, the same as in January, while a net 23% expect to raise compensation in the next three months, up from 22% in January.

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.