The National Federation of Independent Business (NFIB) reported a decline in small business optimism for February, with its Small Business Optimism Index falling by 2.1 points to 100.7. Despite the decline, this marks the fourth consecutive month the index has remained above the 51-year average of 98. However, the index remains 4.4 points below its recent peak of 105.1 recorded in December. Meanwhile, the Uncertainty Index rose by four points to 104, marking the second-highest reading ever recorded.
“Uncertainty is high and rising on Main Street, and for many reasons,” said NFIB Chief Economist Bill Dunkelberg. “Those small business owners expecting better business conditions in the next six months dropped and the percent viewing the current period as a good time to expand fell, but remains well above where it was in the fall. Inflation remains a major problem, ranked second behind the top problem, labor quality.”
Key Findings from the Survey
- The net percentage of owners expecting the economy to improve dropped by 10 points to a net negative 37% (seasonally adjusted).
- The percentage of owners viewing the current period as a good time to expand fell five points to 12%, marking the largest monthly decrease since April 2020.
- Sixteen percent of owners identified inflation as their most significant problem, a two-point decrease from January, placing it just below labor quality as the primary concern.
- A net 32% of owners reported raising average selling prices, a 10-point increase from January and the third highest in survey history.
- A seasonally adjusted net 29% of owners plan price hikes over the next three months, up three points from January and the highest level in 11 months.
- Reports of labor costs as the single most important problem rose three points to 12%, nearing the highest recorded level of 13% from December 2021.
Hiring Challenges and Wage Trends
The survey revealed continued hiring difficulties among small businesses. A seasonally adjusted 38% of small business owners reported job openings they could not fill in February, up three points from January and the highest reading since August 2024. Among the 53% of owners hiring or trying to hire in February, 89% reported few or no qualified applicants.
A net 15% of small business owners plan to create new jobs in the next three months, a three-point decrease from January. Labor quality remains the top challenge for business owners, rising one point to 19%, overtaking inflation as the leading issue.
Seasonally adjusted, a net 33% of owners reported raising compensation, unchanged from January, while a net 18% plan to raise compensation in the next three months, down two points from January.
Capital Expenditures and Sales Performance
Capital spending among small business owners remained steady, with 58% reporting capital outlays in the last six months, unchanged from January. Among those making expenditures:
- 37% invested in new equipment.
- 30% purchased vehicles.
- 13% expanded or improved facilities.
- 12% spent on new fixtures and furniture.
- 5% acquired new buildings or land for expansion.
The percentage of owners planning capital outlays in the next six months declined by one point to 19%.
Sales trends showed some weakening, with a net negative 12% of owners reporting higher nominal sales over the past three months, down two points from January. The net percentage of owners expecting higher real sales volumes declined by six points to 14%, marking the second consecutive monthly drop.
Inventory and Financing Conditions
Inventory levels remained stable, with a net negative 6% of owners reporting inventory gains, unchanged from January. The percentage of owners planning inventory investment declined by one point to a net negative 1%.
Financing conditions showed minimal change. A net 2% of small business owners reported that their last loan was harder to obtain than previous attempts, down one point from January and the lowest reading since February 2022. Three percent of owners cited financing and interest rates as their top business problem, unchanged from January, while a net 4% reported paying a higher rate on their most recent loan.
New Business Health Assessment
For the first time, NFIB introduced a new question assessing how small business owners view the overall health of their business. According to the survey:
- 11% rated their business health as excellent.
- 55% reported it as good.
- 27% described it as okay.
- 6% classified their business health as bad.
The NFIB Small Business Economic Trends report has been conducted quarterly since 1973 and monthly since 1986. The February 2025 survey was based on responses from a random sample of NFIB members and was released on March 11, 2025.