Small business optimism falls, remains higher than average

Small business owners were less optimistic last month than in January as labor shortages worsened, according to the National Federation of Independent Business. .The NFIB Small Business Optimism Index dropped 2.1 points to 100.7, its fourth straight month of being above its 51-year average of 98. The reading is 4.4 points under its most recent high of 105.1 in December. The index tracking uncertainty increased four points to 104, its second-highest reading. “Uncertainty is high and rising on Main Street, and for many reasons,” according to NFIB. “How future developments are resolved will shape the economy’s future. Confidence that the economy will continue to grow is fading.” Nineteen percent of owners cited labor quality as their most important problem last month, up one percent from January and surpassing inflation as the No. 1 issue. Twelve percent cited labor costs, up three percent from the previous month. Thirty-eight percent of owners reported job openings they could not fill in the current period in February, up three points from January and its highest reading since last August. A seasonally adjusted net 15 percent of owners expect to create new jobs in the next three months, down three points from January. Sixteen percent of owners cited inflation as the most pressing problem in operating their business, down two points from January and its lowest mark since the fall of 2021. Thirty-eight percent reported having higher average selling prices, far higher than the 6 percent who had lower prices.Nearly half of owners reported few or no qualified applicants for the jobs they were trying to fill. Twenty-seven percent of owners reported few qualified applicants for their open positions, while 21 percent had no qualified applicants for those roles. One-third of owners raised compensation, unchanged from January. A net 18 percent plan to raise compensation in the next three months, down two points from January. “On Main Street, compensation will continue to put pressure on owners to raise prices, a negative for the inflation fight,” according to the NFIB. “Wage hikes are necessary to maintain current employment and hopefully to help fill vacancies.” Other report findings included:Fifty-eight percent made capital outlays in the last six months, the same as in January. Of those, 37 percent spent on new equipment, 30 percent purchased vehicles and 13 percent improved or expanded their facilities. A net negative 12 percent of owners saw higher nominal sales in the past three months, down two points from January. Owners expecting higher real sales volumes dropped six points last month to a net 14 percent. The frequency of positive profit trend reports was a net negative 24 percent, down one point from January. Of those seeing lower profits, 40 percent cited weaker sales, 13 percent blamed usual seasonal changes and 11 percent cited labor costs. Of those seeing higher profit, more than half cited higher sales, 15 percent listed usual seasonal changes and 13 percent credited higher selling prices.