Small Business Optimism Drops Below Average as Uncertainty and Inflation Concerns Rise
The NFIB Small Business Optimism Index stepped down 3 points to 95.8 in March, falling below the 52-year average of 98.0. March’s decrease was due primarily to a decline in earnings trends and expected business conditions. Of the 10 components included in the index, eight decreased and two stayed the same. Meanwhile, the Uncertainty Index rose 4 points to 92, still well above the 51-year average (68) and above the average since 2016 (80).
Taxes were again cited as the top concern for small business owners, with 19% reporting them as the most important problem, unchanged from February. The share of business owners reporting labor quality as the top problem stayed the same in March at 15%, with 32% struggling to fill open jobs and 52% reported hiring or trying to hire in March. Meanwhile, inflation ranked third in the list of concerns, with 14% reporting it as their top problem, up 2 points from February, with a net 25% raising prices.
A net 33% of small business owners reported raising compensation, down 1 point in March after moving up 2 points in February. Meanwhile, 18% of business owners plan to increase compensation in the next three months, down 4 points from February and the lowest reading since July. Pressure on profitability strengthened in March, with positive profit trends falling 11 points from February to a net negative 25%. Among owners reporting lower profits, 32% blamed weaker sales, 19% mentioned usual seasonal changes, 10% cited increased material costs and 7% noted labor costs. Meanwhile, 5% reported their last loan was harder to get than previous attempts, unchanged from February, and a net negative 3% of owners cited paying a higher interest rate on their most recent loan, unchanged from the prior month.
The outlook for general business conditions fell 7 points to 11%, remaining above the historical average of 4%. Furthermore, expectations for better business conditions are down 10 points from March 2025. At the same time, 11% reported that it is a good time to expand their business, down 4 points from February and a rather weak reading compared to times of economic expansion. Overall, growth has slowed and uncertainty has risen, as small business owners anticipate worse conditions in the future.