Small-Business Optimism Hits 9-Month Low Amid Rising Prices and Borrowing Costs: Report

Data from the National Federation of Independent Business (NFIB) revealed that small-business optimism in the US reached a nine-month low last month. The report highlighted that increased prices and borrowing expenses have impacted the growth strategies of small enterprises. NFIB stated that the sentiment index dropped by 0.5 points to 89.4, representing the sixth decrease in the last seven months. This reading, the lowest in nine months, also marks the 26th consecutive month where the index has stayed below its 50-year average of 98.

Inflation Is the Top Concern for Small Businesses

According to the NFIB report, inflation has surpassed labor quality as the primary concern for small businesses. The survey indicated that approximately 23 percent of owners, an increase of 3 points, identified inflation as their foremost challenge in running their business.

"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's chief economist, Bill Dunkelberg.

However, there is a somewhat positive outlook on inflation for the future, as only 21% of owners reported expecting to raise their average selling prices, the lowest figure since January 2021. This development suggests a potential decline in inflation, which could incentivize a rate cut by the Fed.

Nevertheless, softening employment conditions remains another important factor to consider.

Labor Market Conditions Ease

According to the NFIB report, the proportion of surveyed business owners citing labor difficulties as a top concern decreased from 21% in January to 16%, indicating a positive shift in the labor market. This reading also marked the lowest level since April 2020.

"The labor market has also eased slightly as small business owners are having an easier time attracting and retaining employees," Dunkelberg added.

Furthermore, business owners' intentions to fill vacant positions continue to decelerate. According to the report, only 12% of small business owners, seasonally adjusted, plan to create new jobs in the next three months, marking the lowest level since May 2020.

However, approximately 37% of all owners reported being unable to fill current job openings, down two points from January and the lowest since January 2021. Encouragingly, around 56% of owners surveyed in February stated they were actively hiring or attempting to hire workers.

Expansion Slows Down

Of the surveyed small business owners, 54% reported capital outlays in the last six months, a decrease of five points from January. Among those investing in expansion, approximately 35% allocated funds for new equipment, 23% invested in vehicles, and 15% focused on improving or expanding facilities.

Moreover, only about 21% (seasonally adjusted) of small business owners planned capital outlays in the coming months.

Holding Onto Hope for Improvement

Despite challenges, small business owners remain optimistic about future prospects. The share of owners expecting better business conditions in six months fell 1 point to a net-negative 39%, as per the NFIB report. However, the percentage of business owners anticipating higher real sales in the next three months rose by 6 points to a net negative of 10%.

The net percentage of owners expecting real sales to increase grew by six points from January to a net negative 10% (seasonally adjusted), signaling improvement from the previous month.