U.S. NFIB Small Business Optimism Index Edges Up in April While Inflation Remains the Number One Problem

The NFIB Small Business Optimism Index rebounded to 89.7 in April, the first monthly increase since December, from 88.5 in March, according to the April 2024 Small Business Economic Trends survey conducted by the National Federation of Independent Business. The index, while slightly up from a low of 89.0 in April 2023, had been below the 50-year average of 98 for the 28th straight month; it was also down from a high of 102.5 in June 2021. Seven of the 10 index components rose, two fell, and one was unchanged. The NFIB Small Business Uncertainty Index increased to 78 in April, the highest level since September, from 77 in March; it was up from 72 in April 2023 and a low of 55 in June 2022.

The outlook for business conditions in the next six months remained deeply negative in the latest survey. The net balance of respondents expecting the economy to improve fell to -37% in April, the third monthly fall in four months, after increasing slightly to -36% in March, but it was up from a record-low -61% in June 2022. Expected real sales improved to a net -12% in April after falling 8 pts. to -18% in March, indicating continued pessimism at a less severe pace. The latest reading was up from a low of -21% in May 2023 and a low of -29% in July 2022. A net -13% of respondents reported higher nominal sales in the past three months, down from -10% reported in March; these numbers were up from a low of -17% in November.

Plans to make capital outlays rose to 22% in April, the first m/m rise in four months, from 20% in March. These readings were up slightly from a low of 19% in April 2023 but down from a high of 27% in July 2023 and a high of 31% in October 2021. Plans to expand the business registered at 4% in April and March, the lowest reading since May 2023. The latest figure, while slightly up from a low of 2% in March 2023, was below a high of 11% in December 2021 and a high of 15% in June 2021. Meanwhile, expected credit conditions declined to -9% in April, the lowest reading since November, after falling 2 pts. to -8% in March; the latest number was also down from a high of -4% in May 2022 and a high of -3% in November 2021.

Labor markets remained tight but seemed to ease slightly. Fifty-one percent of respondents reported that qualified workers to fill job openings were hard to find in April, following 48% in March and 51% in February. These figures, however, were below a high of 57% in September 2023, a high of 61% in May 2022, and a peak of 62% in September 2021. A net 12% planned to increase employment in April, slightly up from 11% in March, but it was down from a high of 26% in May 2022 and well below a high of 32% in August 2021. Notably, 40% reported positions not able to be filled in April, the highest reading since December, following 37% in March and February (37% was the lowest reading since January 2021). These figures were historically high; however, having remained below a high of 51% in May 2022. Overall earnings trends increased slightly to -27% in April, still a poor reading, from -29% in March; these numbers were below a high of -18% in March 2023.

On the pricing front, inflation pressures, while trending down, remained at an inflationary level. The net percent raising their average selling prices eased to 25% in April after rising 7 pts. to 28% in March; it was meaningfully down from 33% in April 2023 and a high of 66% in March 2022. The percentage planning to raise prices fell to 26% in April after a three-point increase to 33% in March, registering the lowest reading since April 2023’s 21%; these figures were well below a high of 52% in March 2022.

Wage inflation remained high as a net 38% of respondents raised compensation during the last three months, unchanged from 38% reported in the previous survey. Nevertheless, it was down from a high of 46% in February 2023 and a peak of 50% in January 2022. A net 21% of firms planned to raise worker compensation in the next three months, unchanged from 21% in the previous survey. However, it was down from a high of 30% in November and a high of 32% in October 2022.

Inflation continued to be an issue facing small businesses, as reported by 22% of NFIB members in April as the single most important problem. It was down from 25% in March and well below a peak of 37% in July 2022. The quality of labor was the second important concern with 19% in April, up from 18% in March. Other concerns (in April vs. March) included taxes (15% vs. 14%), the cost of labor (11% vs. 10%), and government requirements (8% vs. 6%).

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s SURVEYS database.