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Economy in Brief

U.S. Small Business Optimism Declined in January
by Sandy Batten  February 8, 2022

• Optimism fell to lowest level since February 2021.

• Inflation was a top concern with the net percent raising prices increasing to the highest level since Q4 1974.

• Labor-market conditions remained historically tight.

• Respondents remained very pessimistic about near-term outlook.

The Small Business Optimism Index fell to 97.1 in January, its lowest reading since February 2021, from 98.9 in December. In January, only one of the index's 10 components increased from December, seven declined and two were unchanged. Inflation remained a major concern for small businesses as 22% of respondents reported that inflation was their single most important business problem, unchanged from December when it reached the highest level since 1981. The NFIB Uncertainty Index eased slightly to 71 in January from 72 in December.

Inflation pressures remain intense with a net 61% of respondents raising average selling prices in January, up from 57% in December and reaching the highest level since Q4 1974 when the survey was taken only quarterly. The percentage planning to raise prices slipped to a net 47% in January from 49% in December and November's record 54%.

Respondents remained quite pessimistic over the near-term outlook, though less so than in December. The net balance of respondents expecting the economy to improve over the next six months improved slightly to -33% in January from -35% in December. The figure remained well below its most recent peak of 39% in June 2020. Those expecting higher real sales slumped to a net -3% in January from +3% in December. Plans to expand the business fell to a net 9% from 11% in December. An unchanged net 29% of firms expected to make capital outlays.

Employment readings continued to generally point to tight labor-market conditions, but slightly less tight than in December. The net balance of firms planning to increase employment edged down to 26% in January from 28% in December. And finding qualified candidates to fill job openings became a little less difficult though remained historically quite elevated. The index measuring few or no qualified applicants fell to a net 55% from 57%. And the percent of firms with positions not able to fill now slipped to a net 47% from 49% in December.

Worker compensation balances also reflected relatively tight labor markets. The percentage of firms raising worker compensation increased to a record net 50% in January from 48% in December, while the percentage planning to raise compensation fell to a net 27% from the record 32% recorded in October, November and December. Twenty-three percent of respondents cited the quality of labor as their most important problem, down from 25% in December and a record 29% in November, while the percent reporting labor cost as their most important problem slipped to 11% in January from a record 13% in December.

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) Jan Dec Nov Jan '21 2021 2020 2019
Small Business Optimism Index (1986=100) 97.1 98.9 98.4 95.0 98.8 99.6 103.0
Firms Expecting Economy to Improve -33 -35 -38 -23 -24 20 13
Firms Expecting Higher Real Sales -3 3 2 -6 0 1 18
Firms Reporting Now Is a Good Time to Expand the Business 9 11 10 8 11 13 25
Firms Planning to Increase Employment 26 28 25 17 25 16 19
Firms With Few or No Qualified Applicants for Job Openings (%) 55 57 56 46 55 46 52
Earnings Trends -17 -14 -17 -16 -13 -16 -5
Firms Reporting that Credit Was Harder to Get 2 4 1 1 2 3 4
Firms Raising Average Selling Prices 61 57 59 17 42 5 13
Firms Raising Worker Compensation 50 48 44 25 37 23 31
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