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

Admir Kolaj, Economist | 416-944-6318

Date Published: February 13, 2024

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 U.S. Small Business Optimism Retreats at the Start of the Year

  • NFIB's Small Business Optimism Index fell 2 points to 89.9 at the start of this year, coming in below market expectations for mild improvement to 92.3. This marked the 25th consecutive month that the index was below its historical average of 98 points.
  • Six of the ten subcomponents fell on the month, two improved, and two remained unchanged. Leading the declines was a 12-point drop in expectations regarding higher real sales to -16%. Earning trends also headed lower, falling 5 points to 30%, while expectations about a further improvement in the economy fell 2 points to -38%. 
  • The share of businesses planning to increase employment fell 2 points for the second month in a row to 14% – down some 5 points from the pre-pandemic level and the lowest level since late 2016. The share of firms with unfilled job openings declined one point to 39%. Quality of labor concerns rose one point, with 21% of business owners identifying this as their top business problem. Inflation concerns came in second place, falling one point to 20%.  
  • The share of firms increasing compensation rose 3 points to 39%, while the share of firms planning to raise compensation moved in the opposite direction, falling 3 points to 26%. Both of these measures have been trending up recently on a 3-month moving average basis. The share of businesses 'raising' average selling prices fell 3 points to 22%, but the share of firms planning price hikes in the next three months continued to trend in the opposite direction, rising one point to 33%. 

Key Implications

  • Following some improvement at the end of last year, small business confidence entered 2024 on a softer footing, with a pullback in earnings trends and a very negative shift in expectations regarding higher real sales. Businesses are making adjustments in response to the challenges that they face, with labor market indicators showing that they are planning to slow hiring. However, this appears to be related to the fact that they can't find enough workers, given that labor quality concerns are identified as the top business problem and firms have continued to raise compensation to attract and retain talent. 
  • While the share of businesses 'raising' average selling prices has trended lower recently, in tune with a cooldown in inflation, the share of businesses 'planning to raise' prices ahead has moved in the opposite direction. After touching a cyclical low of 21% in April of last year, this latter indicator has generally trended higher, holding at an elevated 33% at the start of this year. This continues to point to some upside risk for inflation in the months ahead, an element that leans in favor of a more patient Fed when it comes to the timing of rate cuts.