The NFIB Small Business Optimism Index dropped for a third straight month, falling to 97.4 in March. The latest reading was below the 98.9 forecast and pushes the index below the historical average for the first time since October. The index is at the 38th percentile of the series.
Key Takeaways from March's report:
- The net percent of small business owners expecting higher sales volume fell for a third consecutive month after surging from recession levels after the election.
- Labor quality remains the top issue for small businesses, followed by taxes (highest level since November 2021), and then inflation.
- The net percent of small business owners expecting better business conditions fell for a third straight month, experiencing its largest monthly decline since December 2020.
- The net percent of owners raising selling prices experienced its largest monthly decline since December 2022 but remains historically high.
- Loans were harder to get and the number of owners borrowing on a regular basis increased from February.
The first chart below tracks the NFIB Small Business Optimism Index since 1986, with a baseline level of 100. Notice the sharp declines in sentiment during the Great Financial Crisis and the COVID-19 pandemic. In contrast, the index showed relative resilience during the 2000-2003 Tech Bubble collapse. Following the Great Recession, small-business sentiment remained weak for an extended period, a pattern that closely resembled the past two years of pandemic-related disruptions and high inflation. Another interesting pattern to the index was the nearly identical jumps following the 2016 and 2024 elections.
The average monthly change in the NFIB Small Business Optimism Index is 1.4 points. To filter out short-term fluctuations, the chart below presents a 3-month moving average alongside the individual monthly values, represented by dots.
NFIB Small Business Survey Components
The NFIB Small Business Optimism Index is composed of 10 components. In March, two components increased, seven declined, and one was unchanged.
Business Optimism and Consumer Attitudes
The next few charts are overlays of the Business Optimism Index with two of the main measures of consumer attitudes: Conference Board Consumer Confidence and University of Michigan Consumer Sentiment Index. The Consumer Confidence Index is influenced by employment and labor market conditions from the worker's perspective whereas the Michigan Sentiment Index is more focused on employment conditions from the business perspective. (For more information on how these indexes measure up against each other, check out our monthly update Two Measures of Consumer Attitudes: MCSI vs. CCI).
In our first chart comparing the NFIB Small Business Optimism Index with the Conference Board Consumer Confidence Index, we can see that the consumer measure is the more volatile of the two. Therefore, it is plotted on a separate axis to give a better comparison of the two series from the common baseline of 100.
Next, we compare the NFIB Small Business Optimism Index with the University of Michigan Consumer Sentiment Index. Again, we've plotted each index on a separate axis, however in this chart, we can see that the business measure is more volatile of the two.
Despite the volatility though, we can see that these two measures of mood (business and consumer) have been highly correlated, falling and rising together for the most part. A decline in Small Business Sentiment was a long leading indicator for the first two recessions of the century, but clearly not for the Covid-19 recession.
