The latest report from the National Federation of Independent Business (NFIB) highlights a notable decline in small business optimism for February, as the Small Business Optimism Index decreased by 2.1 points to 100.7. Despite this downturn, the index has consistently held above the 51-year average of 98 for four consecutive months. However, it remains 4.4 points lower than the recent peak of 105.1 achieved in December. Additionally, the Uncertainty Index witnessed a four-point increase to 104, reaching its second-highest level ever recorded.
“Uncertainty is high and rising on Main Street for various reasons,” stated NFIB Chief Economist Bill Dunkelberg. “A significant drop in the number of small business owners anticipating improved business conditions in the next six months coincides with a decrease in those considering this a good time to expand, although optimism remains above levels seen in the fall. Inflation continues to be a pressing issue, ranking as the second most significant challenge, following labor quality.”
Survey Highlights
- The proportion of owners expecting economic improvement fell by 10 points to a net negative 37% (seasonally adjusted).
- The percentage of owners considering the current period a favorable time for expansion dropped five points to 12%, the steepest monthly decline since April 2020.
- Sixteen percent of owners identified inflation as their chief concern, down two points from January, trailing only labor quality as the primary issue.
- A net of 32% of owners noted increases in average selling prices, marking a 10-point rise from January and the third highest in survey history.
- A seasonally adjusted net of 29% of owners plan to implement price hikes over the next three months, reflecting a three-point increase from January and the peak level in 11 months.
- The percentage of owners citing labor costs as their top issue rose three points to 12%, nearing the previous high of 13% recorded in December 2021.
Hiring Trends and Wage Adjustments
The survey underscored ongoing hiring challenges for small businesses. A seasonally adjusted 38% of owners reported unfilled job openings in February, an increase of three points from January—marking the highest reading since August 2024. Among the 53% of owners actively hiring or seeking hires, 89% experienced a scarcity of qualified applicants.
A net of 15% of small business owners plan to create new jobs in the next three months, a decrease of three points from January. Labor quality remains the most significant challenge, rising one point to 19%, surpassing inflation as the primary concern for business owners.
Seasonally adjusted, a net 33% of owners reported raising compensation, unchanged from January, while a net 18% plan to increase compensation over the next three months, down two points from the previous month.
Capital Investments and Sales Trends
Capital spending among small business owners held steady, with 58% reporting capital expenditures in the past six months, consistent with January’s figures. Among those making outlays:
- 37% invested in new equipment.
- 30% purchased vehicles.
- 13% expanded or improved facilities.
- 12% acquired new fixtures and furniture.
- 5% invested in new buildings or land for future expansion.
The percentage of owners planning further capital investments in the next six months dropped by one point to 19%.
Sales performance showed signs of weakening, with a net negative 12% of owners reporting increased nominal sales over the last three months, down two points from January. The net percentage of owners anticipating higher real sales volumes decreased by six points to 14%, marking the second consecutive monthly decline.
Inventory Levels and Financing Conditions
Inventory levels remained stable, with a net negative 6% of owners reporting inventory gains, unchanged from January. The proportion of owners planning inventory investment fell by one point to a net negative 1%.
Financing conditions exhibited minimal change. A net 2% of small business owners indicated that acquiring their last loan was more difficult than previous attempts, down one point from January—the lowest reading since February 2022. Three percent cited financing and interest rates as their top business challenges, consistent with January figures, while a net 4% reported higher rates on their latest loan.
Health Assessment of New Businesses
In a new initiative, the survey included a question assessing small business owners’ perceptions of their overall business health:
- 11% rated their business health as excellent.
- 55% indicated it as good.
- 27% described it as okay.
- 6% classified their business health as poor.
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.
