The NFIB Small Business Optimism Index, commonly referred to as the NFIB Small Business Index, is a monthly economic indicator that measures the sentiment and expectations of small business owners in the United States. It is published by the National Federation of Independent Business (NFIB), a leading organization representing small and independent businesses.
The NFIB Small Business Index is based on a survey conducted among NFIB members, which includes small business owners in various industries. The survey covers a range of topics related to working conditions, including sales, employment plans, capital expenditures, inventory levels, and the overall economic outlook.
The index is calculated by aggregating responses to several survey questions and is designed to provide a snapshot of small business sentiment. A higher index reading indicates greater optimism and positive sentiment among small business owners, while a lower reading indicates increased pessimism and negative sentiment.
The NFIB Small Business Index is a leading indicator because it can provide insight into the health and confidence of small businesses, which are a vital component of the U.S. economy. Small businesses account for a large part of job creation and economic activity, making the index a valuable tool for assessing economic trends and business conditions.
The index is closely watched by economists, policymakers, and market participants because it can provide early signals of changes in economic activity and business sentiment. It can also influence market expectations and policy decisions related to small businesses, such as tax policies, regulations, and access to credit.
In addition to the general index, the NFIB Small Business Optimism Index provides details for specific components, allowing for a more detailed analysis of small business sentiment and outlook. These components can include plans for capital investment, job creation, profit trends, and concerns about regulations or taxes.
A look at the January NFIB Report
Bill Dunkelberg, chief economist at NFIB, said consumer spending remains strong, but small business owners are having a hard time finding enough workers to fill vacancies. Employers continue to increase compensation to attract and retain skilled workers , but employment remains a challenge in a tight labor market . .
According to the data, business owners’ plans to fill vacancies fell 14% seasonally, as they plan to create new jobs in the next three months, down two points from December . .
The net percentage of business owners reporting an increase in inventory rose by two points to 0%. It was not seasonally adjusted, with 13% reporting an increase in inventory (up one point) and 19% reporting cuts (up four points) . 4% of business owners also reported that their current inventory was “very low” in January, up one point from December. Shortages were reported in several industries, including wholesale trade (18%), retail (12%), and finance (11%).) .
Various sectors witnessed a rise in prices, with wholesale (47% higher, 7% lower), retail (43% higher, 11% lower), services (43% higher, 6% lower) and finance (42% higher, 14% lower) being the most affected by the price increase. Regarding construction, 36% reported rising prices and 9% saying they were declining . .
Small business economic trends data has been collected through quarterly surveys since 1973 and monthly surveys since 1986. Survey participants are randomly selected from NFIB members. Reports are issued on the second Tuesday of each month. This survey was conducted in January 2024 .
March NFIB Decline: Weak Improvement Remains Below Expectations
The headline figure of the NFIB Small Business Optimism Index fell to 88.5 in March this month, the lowest level since 2021. The latest reading was worse than forecast of 88.8 and marks the twenty-seventh consecutive month in which the index is below the series average of 98.0. Indicator in the fourth percentile in this series.
The following is an excerpt from the opening summary of the press release.
“Small business optimism has reached its lowest level since 2012 as owners continue to manage many economic headwinds,” said NFIB’s chief economist. Inflation was again reported as the biggest business problem on the main street and the labor market fell only slightly.
The 1986 baseline level of 100 includes some labels to help us visualize the dramatic change in small business sentiment that accompanied the COVID-19 pandemic major financial crisis. Compare, for example, the relative resilience of the index during the collapse of the technology bubble in 2000-2003 with much weaker readings following the Great Recession that ended in June 2009. A similar pattern occurred starting in 2019 and decreased significantly during the COVID-19 crisis..
The index has shown relative stability over the past 21 months, remaining within the range of 89.0 to 92.1. However, these latter levels are historically lower, ranking between the fifth and sixteenth percentiles of the series. The average monthly change in this indicator is 1.3 points. To mitigate the noise of fluctuations
By tracking changes in the National Business Research Council’s (NFIB) Small Business Optimism Index over time, analysts can gain insight into the evolving sentiment of small business owners, which can have implications for economic growth, employment, and overall business conditions in the U.S.
April NFIB Report: Small Business Optimism Grows Despite Inflation Concerns
In April, the NFIB’s Small Business Optimism Index rose 1.2 points to 89.7, demonstrating the initial increase this year, though for 28 consecutive months it remained below the 50-year average of 98. It is worth noting that 22% of business owners identified inflation as their biggest concern, although it is down three points from March, it still ranks first among small business challenges.
Bill Dunkelberg, chief economist at NFIB, stresses that cost pressures remain a major concern for small business owners. It highlights the prevailing trend of employers resorting to historically high levels of compensation adjustment to retain and attract talent. Despite these challenges, Dunkelberg notes that there is continued optimism among small business owners as they steadily overcome uncertainties while prioritizing customer service.
Key insights from the report include a significant six-point rise in the net percentage of owners expecting real sales to increase, although it remains at a negative net of 12% (seasonally adjusted). Moreover, 12% of landlords expressed their intention to create new jobs in the next three months, representing a slight increase from the low levels in March. However, the report also notes a decline in the proportion of owners planning to raise interest rates in April, reaching the lowest level since the same period last year.
Furthermore, the report highlights the challenges posed by labor shortages, with 40% of all owners reporting vacancies, a trend that has been on the rise since March. Despite these obstacles, capital expenditure remains constant, with 56% of owners reporting recent spending, especially on new equipment, vehicles and facility improvements.
In terms of inventory management, there is a mixed picture, with 4% of owners seeing their current inventory as “very low” in April. However, a negative net of 6% expresses inventory investment intentions in the near future. On the pricing front, while 41% of owners report higher average sales prices, inflation concerns remain, with 22% citing it as their core business issue.
Labour costs remain a major concern for 11% of business owners, up slightly from March, indicating ongoing challenges in this area. Despite these obstacles, there are pockets of optimism, with 21% of owners planning to increase compensation in the coming months.
In short, the NFIB report paints an accurate picture of the small business landscape, highlighting ongoing challenges, areas of resilience and opportunities.
