Small business owner sentiment remains stunted by inflation, according to the National Federation of Independent Business.
The NFIB Small Business Optimism Index fell a half-point last month to 89.4, its 26th straight month under the 50-year average of 98. Twenty-three percent of small business owners cited inflation as their No. 1 business problem in operating their business, a three-point increase from January and replacing labor quality as the most pressing problem.
Inflation increased 3.2 percent on an annualized basis and 0.4 percent in February, according to the Bureau of Labor Statistics. Federal Reserve officials have signaled that interest rate cuts are unlikely until at least June as the economy remains strong and unemployment is low at 3.9 percent.
Only 16 percent of small business owners cited labor quality as their most pressing concern, its lowest reading since April 2020. Fifty-six percent of owners were hiring or trying to hire last month. Thirty-seven percent of owners had job openings they could not fill in the current period, down two points from January and its lowest reading since the start of 2021.
Economic pessimism continued. Owners who expect real sales to increase improved six points last month to a net negative 10 percent. A net negative 13 percent saw higher nominal sales in the past three months.
Plans to fill open positions continued to drop. A net 12 percent expect to have new jobs in the next three months, its lowest mark since May 2020. Owners raising their average selling prices fell one point to a net 21 percent, its lowest reading since January 2021.
“While inflation pressures have eased since peaking in 2021, small business owners are still managing the elevated costs of higher prices and interest rates,” said NFIB Chief Economist Bill Dunkelberg. “The labor market has also eased slightly as small business owners are having an easier time attracting and retaining employees.”
Other report findings included:
- Thirty-five percent of small business owners raised compensation, down four points from January, while 19 percent expect to raise pay in the next three months, down seven points from the previous month.
- Fifty-four percent made capital outlays in the last six months, down five percent from January. Of those, 35 percent spent on new equipment, 23 percent acquired vehicles and 15 percent expanded or improved their facilities. Twenty-one percent plan capital outlays in the next few months.
- The frequency of positive profit trends was measured at a net negative 31 percent. Among those seeing lower profits, 29 percent cited weaker sales,15 percent highlighted the rise in the cost of materials, and 13 percent cited seasonal changes.