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Economy in Brief

U.S. Small Business Optimism Declines for Third Month
by Sandy Batten  April 12, 2022

• Optimism fell to lowest level since April 2020.

• Expectations of better business conditions in next six month plummeted to all-time low.

• Inflation overtook labor quality as top concern.

The NFIB Small Business Optimism Index fell to 93.2 in March, its third consecutive monthly decline and lowest reading since April 2020, from 95.7 in February. In March, only two of the index's 10 components increased from February, five declined and three were unchanged. This survey was conducted during the month of March with participants randomly selected from members of the National Federation of Independent Business.

Of most concern to respondents in March was the outlook for the next six months. Respondents expecting better business conditions over the next six months plunged 14 points to a net -49%, the lowest reading in the survey's 48-year history. This marked increase in pessimism concerning the outlook was also reflected in a 12-point decline in expected real sales to a net -18%, the lowest reading since the first pandemic lockdown. Plans to expand the business fell for the third consecutive month, to a net 6% in March, its lowest reading in more than a year, from 8% in February. The net percent of firms planning to make capital expenditures fell to 26% in March from 27% in February, the second consecutive monthly decline.

Inflation overtook labor quality as the major concern of small businesses as 31% of respondents list it as the single most important business problem, up five points from the February survey. Twenty-two percent of respondents listed the quality of labor as their major problem, unchanged from February. Accordingly, inflation pressures remain intense with a record 72% of respondents raising average selling prices in March, up from 68% in February. Moreover, the percentage planning to raise prices rose 4 points to a net 50% in March after having declined slightly in each of the preceding three months.

Employment readings were on balance little changed in March though they continued to point to historically tight labor-market conditions. The net balance of firms planning to increase employment edged up to 20% in March after having fallen seven points to 19% in February. Firms continue to have difficulty finding qualified candidates. A new 47% reported having positions that they were unable to fill, down from 48% in February but still near a record high. And 55% of respondents reported having few or no qualified applicants for job openings, down from 57% in February but also still near a record high.

The continued tightness in labor markets was reflected in higher worker compensation. The percentage of firms raising worker compensation rose four points to a net 49% in March, just one point from the record net 50% set in January. Furthermore, a net 28% of respondents plan to increase worker compensation in the next three months, up from 26% in February.

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) Mar Feb Jan Mar '21 2021 2020 2019
Small Business Optimism Index (1986=100) 93.2 95.7 97.1 98.2 98.8 99.6 103.0
Firms Expecting Economy to Improve -49 -35 -33 -8 -24 20 13
Firms Expecting Higher Real Sales -18 -6 -3 0 0 1 18
Firms Reporting Now Is a Good Time to Expand the Business 6 8 9 11 11 13 25
Firms Planning to Increase Employment 20 19 26 22 25 16 19
Firms With Few or No Qualified Applicants for Job Openings (%) 55 57 55 51 55 46 52
Earnings Trends -17 -17 -17 -15 -13 -16 -5
Firms Reporting that Credit Was Harder to Get 3 2 2 1 2 3 4
Firms Raising Average Selling Prices 72 68 61 26 42 5 13
Firms Raising Worker Compensation 49 45 50 28 37 23 31
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