US: NFIB Small Business Optimism Index

The NFIB small business optimism index is down 3.3 points to 97.4 in March, below the consensus of 98.9 in the Econoday survey of forecasters. The report said the index is below the 51-year average of 98 after four months above it. In the post-election period, the index saw an 8.0 point hop to 101.7 but has been steadily declining since. The NIFB uncertainly index is down 8 points in March to 96. The index was at a record high of 110 in October and fell in the next two months. The index rose again in January and February saw its second highest reading at 104. The decline may mean that businesses are less uncertain, but that is not making survey respondents more optimistic.

Among index components, 2 are higher, 7 are lower, and 1 is unchanged. The largest declines are 16 points to 21 percent for expectations for the economy to improve and 11 points in expectations for higher sales to 3 percent. Although both remain positive for the fifth month in a row, the trajectory since December has been sharply lower.

The March components related to the job also suggest that the outlook is less bright for small businesses. While the index for current jobs is up 2 points to 40 percent, it may be because small businesses are taking advantage of the presence of more qualified workers in the job market. However, plans to hire are down 3 points to 12 percent in March.

Among the single-most important problems reported by respondents, the quality of labor was at 19 percent in March for the fifth month in a row. Respondents citing inflation as the most important problem remained at 16 percent in March, the same as in February and the lowest since 16 percent in October 2021. The number of respondents citing taxes as their most important problem is up 2 points to 18 percent in March, the highest since 18 percent in November 2021 and overtaking inflation.

Sentiment has been losing ground as businesses face an uncertain economic environment. The index is expected down again at 98.9 in March after falling 2.1 points from January to 100.7 in February. The index hit a recent peak of 105.1 in December on expectations that a Trump presidency would be good for business.

The small business optimism index is compiled from a survey that is conducted each month by the National Federation of Independent Business (NFIB) of its members. The index is a composite of 10 seasonally adjusted components based on the following questions: plans to increase employment, plans to make capital outlays, plans to increase inventories, expect economy to improve, expect real sales higher, current inventory, current job openings, expected credit conditions, now a good time to expand, and earnings trend.

Small businesses are responsible for a majority of new job creation and the NFIB focuses on this sector of the economy. The direction of the health of small businesses can portend changes in the stock market - especially small caps.