# Small Business Optimism Index Shows Decline in February

**WASHINGTON —** The National Federation of Independent Business (NFIB) Small Business Optimism Index experienced a notable decline of 2.1 points in February, settling at a level of 100.7. This marks the fourth month in a row that the index remains above the 51-year average of 98. Compared to its most recent peak of 105.1 in December, it stands at a concerning 4.4 points lower.

This decline comes as the Uncertainty Index climbed by four points to 104, representing the second-highest recorded reading since the index was established.

“Uncertainty is high and rising on Main Street, and for many reasons,” stated NFIB Chief Economist Bill Dunkelberg, underlining the pressing concerns facing small business owners.

“The number of small-business owners anticipating better business conditions over the next six months has diminished, and fewer perceive the current period as a favorable time for expansion. While these views remain more optimistic than those in the fall, inflation continues to be a significant concern, now ranked second behind labor quality as the primary issue affecting business operations.”

## Key Findings From the NFIB Report

Several critical insights emerged from the NFIB report:

• The net percentage of business owners expecting improvements in the economy has unfortunately dropped 10 points since January, now resting at a net 37% (seasonally adjusted).
• Only 12% of owners (seasonally adjusted) consider it a good time to expand their business, reflecting a decrease of five points from January. This marks the most significant monthly decrease since April 2020.
• Inflation remains a critical challenge for many, with 16% of owners claiming it as their principal concern in conducting business, a minor decline from January, but still just below labor quality as the top issue. The last recorded figure that low was in October 2021.
• The percentage of owners raising their average selling prices has risen by 10 points, now standing at a net 32%, which is the largest monthly increase since April 2021 and ranks as the third highest in the survey’s history. Additionally, the percentage of owners lowering prices is now 10 points lower than the figure last year.
• Adjusting for seasonality, 29% of business owners plan to raise their prices within the next three months, a three-point increase since January, representing the highest figure in 11 months.
• Reported labor costs as the most significant problem for business owners rose to 12%, just one point shy of the record high of 13% reached in December 2021. This level of concern regarding labor costs has not been seen since February 2023.
• The frequency of reports indicating positive profit trends was a net negative 24% (seasonally adjusted), reflecting a slight increase from January.
• A net 2% of owners reported that obtaining their last loan was more challenging than in previous attempts, although this reading has demonstrated a decline of one point. The last recorded figure this low was in February 2022.
• Twenty-four percent of all owners reported regular borrowing, reflecting a decline of three points from January and marking the lowest figure since May 2022.

## Small-Business Health Assessment

A new question introduced to the NFIB survey aims to better ascertain how small-business owners are evaluating the overall health of their enterprises. The results indicate that only 11% of owners rated their business as excellent, while 55% categorized it as good, 27% deemed it okay, and 6% believed their business health to be bad.

## Job Openings Increase Amid Declining Labor Quality

According to NFIB’s monthly jobs report, a seasonally adjusted 38% of small-business owners indicated they have job openings that remain unfilled as of February, an increase of three points from January, marking the highest level since August 2024. Among the 53% of owners actively looking to hire, a staggering 89% reported encountering few or no qualified applicants for the available positions.

Moreover, a seasonally adjusted net 15% of owners plan to create new jobs within the next three months, representing a decrease of three points since January.

The percentage of small-business owners recognizing labor quality as the most pressing issue rose by one point to 19%, overtaking inflation as the leading concern. Reported labor costs as the top operational issue for business owners increased by three points to 12%, remaining only one point shy of the highest reading, which occurred in December 2021.

A seasonally adjusted net of 33% of owners reported raising compensation levels, which remains unchanged from January. However, a net 18% plan to increase compensation within the next three months, reflecting a two-point decrease since the previous month.

## Capital Outlays, Sales Performance, and Inventory Trends

Fifty-eight percent of owners reported making capital expenditures in the last six months, a figure that remains constant from January. Among those investing, 37% allocated funds to new equipment, 30% on acquiring vehicles, and 13% on enhancing or expanding facilities.

Additionally, 12% invested in new fixtures and furniture, while 5% acquired new buildings or land for further business expansion. Looking ahead, 19% (seasonally adjusted) plan capital outlays in the next six months, which represents a slight decline of one point from January.

However, a net negative 12% of all owners (seasonally adjusted) reported experiencing higher nominal sales in the past three months, indicating a two-point decline from January. The net percentage of owners expecting higher real sales volumes has also dropped by six points to a net 14% (seasonally adjusted), marking the second consecutive month of declining sales expectations following a surge from post-election recession levels.

The net percentage of owners reporting an increase in inventory levels remains consistent with January’s figure, standing at a net negative 6% (seasonally adjusted). Not seasonally adjusted data indicates that 8% reported increases in stock, while 19% experienced reductions.

Furthermore, a net negative 5% (seasonally adjusted) of owners considered their inventory levels “too low” in February, which marks a decrease of four points from January. A net negative 1% (seasonally adjusted) of owners plan to invest in inventory in the near future, down one point from the previous month.

## Price Hikes Amid Declining Profit Margins

Despite the challenges, the net percentage of owners who raised their average selling prices increased by 10 points from January, now recording a net 32% (seasonally adjusted). Sixteen percent of owners have identified inflation as their key problem in operations, reflecting a minor decline of two points from January, and still trailing labor quality as the top issue. Significantly, this is the first time inflation has measured this low since October 2021.

In unadjusted figures, 6% of owners reported lower average selling prices, while a notable 38% indicated higher prices. Seasonally adjusted, a net 29% of owners plan for price hikes, marking a growth of three points since January. The report also highlighted that the frequency of owners documenting positive profit trends was a net negative 24% (seasonally adjusted), indicating a decline of one point from January.

Among those reporting reduced profits, 40% attributed this to weaker sales, followed by 13% citing seasonal changes, 11% referring to labor costs, and 9% blaming rising material costs. Conversely, among business owners seen to be enjoying higher profits, 52% attributed their success to increased sales volumes, 15% to regular seasonal fluctuations, and 13% to higher selling prices.

## Facing Financing Challenges

A net of 2% of owners identified their most recent loan as more difficult to secure than previous attempts, a figure that reflects a decline and marks the latest record this low since February 2022.

Additionally, 3% of owners indicated that financing and interest rates were their primary areas of concern in February, a statistic that has remained unchanged since January. On another note, a net of 4% reported experiencing an uptick in the interest rates on their most recent loans.

The NFIB Research Center has diligently gathered data on Small Business Economic Trends through quarterly surveys since 1973 and monthly surveys since 1986. Participants for the surveys are randomly selected from the NFIB’s extensive membership base.

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