"Small Business Uncertainty Surges to Second-Highest Level Since 1973"

The NFIB Small Business Optimism Index fell by 2.1 points in February to 100.7, marking the fourth consecutive month above the 51-year average of 98. However, the Uncertainty Index rose four points to 104, the second highest recorded reading. This surge in uncertainty is a stark reminder of the economic turmoil small businesses are facing, echoing the volatility of the 1970s.

The current economic landscape is a minefield of challenges for small business owners. Inflation remains a major problem, ranked second behind labor quality as the top issue. Sixteen percent of owners reported that inflation was their single most important problem in operating their business, down two points from January but still a significant concern. This is the lowest level since October 2021, indicating that while inflation is still a concern, it has slightly eased compared to recent months.

Labor quality is the top issue, with 19% of small business owners reporting it as their single most important problem. Labor costs are also high, with 12% of owners citing it as a major issue, just one point below the survey’s highest reading of 13% reached in December 2021. This indicates that labor-related issues are a significant source of uncertainty for small business owners.

The net percent of owners expecting the economy to improve fell ten points from January to a net 37% (seasonally adjusted). This drop suggests that business owners are less optimistic about future economic conditions, contributing to the overall uncertainty. The percent of owners reporting that it is a good time to expand their business fell to 12%, down five points from January. This is the largest monthly decrease since April 2020, indicating a significant shift in business owners' willingness to expand their operations.



The current economic uncertainty is a result of a perfect storm of factors. Inflation, labor quality, and regulatory policies are all contributing to the heightened uncertainty. The government's role in either exacerbating or mitigating this uncertainty is crucial. Policies that address inflation, labor quality, and regulatory burdens could help small businesses navigate these challenging times.

The net percent of owners raising average selling prices rose 10 points from January to a net 32%, the largest monthly increase since April 2021. This indicates that businesses are trying to offset rising costs by increasing prices. Additionally, a net 29% plan price hikes in the next three months, showing a proactive approach to managing inflation in the short term.

The report highlights that 38% of small business owners reported job openings they could not fill in February, up three points from January. This suggests that businesses are struggling to find qualified labor, which could impact their ability to meet demand and maintain operations.

Fifty-eight percent of owners reported capital outlays in the last six months, with 37% spending on new equipment and 30% acquiring vehicles. This indicates that businesses are investing in their operations to improve efficiency and productivity, which could help mitigate some of the short-term impacts of economic uncertainty.

In light of anticipated interest rate cuts, 62% of small business owners expect some degree of impact on their business. With a decline in interest rates, small business owners plan on increasing investments (40%) and expanding their business (37%), followed by increasing inventory (26%). This indicates that businesses are looking to take advantage of lower interest rates to invest in growth and expansion.

The percent of small business owners reporting labor quality as the single most important problem for business rose one point from January to 19%, surpassing inflation as the top issue. This suggests that businesses are focusing on improving labor quality and managing labor costs, which could have long-term impacts on their operations and growth.

The current economic uncertainty is a result of a perfect storm of factors. Inflation, labor quality, and regulatory policies are all contributing to the heightened uncertainty. The government's role in either exacerbating or mitigating this uncertainty is crucial. Policies that address inflation, labor quality, and regulatory burdens could help small businesses navigate these challenging times.

The current economic uncertainty is a stark reminder of the challenges small businesses face. The surge in the Uncertainty Index to the second highest recorded reading is a cause for concern. However, small businesses are adapting their strategies to navigate these challenging times. By raising prices, managing labor costs, and investing in capital outlays, small businesses are taking proactive steps to mitigate the impacts of economic uncertainty. The government's role in addressing inflation, labor quality, and regulatory burdens is crucial in fostering greater business confidence and creating a more supportive environment for small businesses to thrive.