NFIB Small Business Optimism Index Retreats Further in February

On Tuesday, the National Federation of Independent Business (NFIB), one of the largest small business associations in the US, reported that its Small Business Optimism Index (SBOI) declined 2.1 points to a reading of 100.7 in February.

Even with the decline, this marks the fourth consecutive month above the 51-year average of 98 and is 4.4 points below its most recent peak of 105.1 in December.

The Uncertainty Index rose four points to 104, the second highest recorded reading.

Other highlights of the report include the following:

• The net percentage of owners expecting the economy to improve dropped 10 points from January to a seasonally adjusted 37%.
• The percentage of owners who consider it a good time to expand their business, seasonally adjusted, fell five points to 12%—the largest monthly decline since April 2020.
• Sixteen percent of owners cited inflation as their biggest business challenge, down two points from January. It now ranks just below labor quality as the top concern, marking its lowest level since October 2021.
• The net percentage of owners raising average selling prices, seasonally adjusted, rose 10 points from January to 32%—the largest monthly increase since April 2021 and the third highest in the survey’s history. Meanwhile, the percentage of owners lowering prices is 10 points lower than a year ago.
• A seasonally adjusted net 29% of owners plan to increase prices in the next three months, up three points from January and the highest reading in 11 months.
• The share of business owners citing labor costs as their biggest problem increased three points to 12%, just one point below the survey’s record high of 13% in December 2021. The last time labor costs ranked this high was in February 2023.
• The frequency of reports on positive profit trends was a seasonally adjusted net negative 24%, up one point from January.
• A net 2% of owners reported greater difficulty obtaining their most recent loan, down one point from January. This is the lowest reading since February 2022.
• The percentage of owners borrowing regularly declined three points to 24%, the lowest level since May 2022.

Commenting on the report, NFIB Chief Economist Bill Dunkelberg said:

“Uncertainty is high and rising on Main Street, and for many reasons. Those small business owners expecting better business conditions in the next six months dropped and the percent viewing the current period as a good time to expand fell but remains well above where it was in the fall. Inflation remains a major problem, ranked second behind the top problem, labor quality.”