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Small Business Optimism Declines, Uncertainty Rises

The NFIB Small Business Optimism Index fell 2.1 points in February to 100.7. Despite optimism falling, it was the fourth consecutive month above the 51-year average of 98 but also 4.4 points below the most recent peak of 105.1. Of the 10 components included in the index, three increased and seven decreased. The Uncertainty Index rose 4 points to 104, the second highest reading of the index.

Labor quality was cited as the top concern for many small business owners in February, surpassing inflation as the top issue, with 19% reporting labor quality as the most important problem. However, inflation was the second most important concern, tied with taxes, with 16% reporting them as their most important problem, the lowest reporting percentage for inflation since October 2021. In February, 38% of small business owners reported jobs they could not fill, up 3 percentage points from January. The challenge of filling open positions remains acute particularly in manufacturing, retail and construction.

A net 33% of small business owners reported raising compensation, the same as January. Profitability remained under pressure, with a net negative 24% reporting positive profit trends, 1 point worse than in January. Of those reporting lower profits, 40% claimed weaker sales, while 13% cited ordinary seasonal adjustments. A net 29% of small business owners planned price hikes in February, up 3 percentage points from January and the highest reading in 11 months. On the other hand, just 2% reported their last loan was harder to get than previous attempts, the lowest since February 2022, while a net 4% of owners reported paying a higher rate on their most recent loan.

The outlook for general business conditions fell 10 points to 37. The share of firms saying it is a good time to expand fell 5 percentage points to 12%. Uncertainty is high and weighing on small business optimism. Although small business owners still remain broadly optimistic, confidence that the economy will continue to grow is fading.

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