U.S. NFIB Small Business Optimism Index (March 2024)

U.S. Small Business Optimism Index edges lower in March, falling to the lowest level since 2012

• NFIB's Small Business Optimism Index fell 0.9 points to 88.5 in March, disappointing market expectations for a modest increase to 89.7. This marked the lowest level in the headline index since 2012. 
• Six of the ten subcomponents deteriorated on the month, two improved and two remained unchanged. Leading the decline was an 8-point drop in the share of firms expecting higher real sales to -18%. Expected credit conditions (-2 points to -8%), capital outlay plans (-1 point to 20%) and the belief that now is a good time to expand (-1 point to 4%) all edged lower, but earnings trends managed to tick higher (+2 points to -29%).  
• The net share of businesses planning to increase employment fell for the fourth month in a row, ticking down 1 point to 11% – almost half the level in the pre-pandemic period. The share of firms with unfilled job openings held steady at 37%, a level that's in line with the pre-pandemic average. Quality of labor concerns rose by 2 points to 18%, marking only a partial recovery after falling 5 points in the month prior. However, inflation was the top concern, with 25% of business owners identifying it as their top business problem.
• The share of firms increasing compensation increased 3 points to 38%, while the share of firms planning to raise compensation over the next three months rose 2 points to 21%, recovering only a small portion of the 7-point drop in the month prior. The share of businesses 'raising' average selling prices rose 7 points to 28% in March, while the share of those 'planning’ to raise average selling prices rose 3 points to 33%. 

Key Implications

• Sales expectations deteriorated in March and small business confidence ended the first quarter on a sour note, with the index falling to 2012 lows. Looking underneath, while the U.S. labor market is showing continuous signs of resilience, today's survey results point to a cooling in conditions among smaller firms, with job openings and quality of labor concerns trending lower, and plans to increase employment falling to late-2016 levels.  
• Inflation remains a top concern for small business owners, a sentiment that was echoed in the pricing metrics. The sharp back-up in the share of firms raising average selling prices and a moderate increase in the share of those that plan raise prices in the next three months reinforce the notion that we're not out of the woods yet with respect to inflation. This latest data works in favor of a more patient Federal Reserve when it comes to lowering the policy rate.          

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