The National Federation of Independent Business (NFIB) small business optimism index decreased last month by nearly a full point (0.9) to 88.5, the metric’s lowest level since December 2012, and a three-month decline since December 2023. The drop also continues a streak of over two years (27 months) of the index being below 90, the average rating over the last 50 years.
Inflation continues to be most pestering to small businesses, who are facing two fronts of inflation-induced challenges when it comes to both business and labor costs. The net percentage of business owners raising prices because of inflation rose seven points in February to 28%. A quarter (25%) of business owners reported inflation was the most significant problem impacting their business due to higher input and labor costs.
A third (33%) of small businesses plan on more price hikes in March, a figure up three percentage points from the prior month’s survey.
Small business owners also are shunning additional financing, likely due to interest rates. Nearly six in 10 (58%) said they have no interest in taking on a loan to support their business. The average interest rate on short-term loans was 9.8%, up from 8.7% in February.
Despite a hesitancy to take on new loans from an industry that is facing regulation issues across multiple states, many businesses are still relying on financing to survive. Nearly three in 10 (28%) said they borrow regularly, up 3 percentage points month over month.
Likely due to inflation pressures and rising consumer prices, 38% of businesses said they raised compensation overall despite poor outlook. That figure increased from 35% in February, which was the lowest figure around compensation since May of 2021. Ten percent of those surveyed said labor was their biggest concern, a figure that has dropped from 13% at its peak in December of 2021.
As per owner compensation, many reported lower profits for their businesses. The frequency of positive profit trends was a net -29%, a rise of two percentage points since last month. For those who are making money, more than half (53%) said sales volumes were to credit, nearly a quarter (23%) credited a seasonal change to their business, and 12% said it was due to their higher prices.