The uncertainty shed business owners are experiencing due to many factors is being felt across the business spectrum.
The National Federation of Independent Business (NFIB) Small Business Optimism Index fell 3.0 points in March to 95.8, leaving it below its 52-year average of 98.0.
The last time the Optimism Index fell below its historical average was April 2025. The Uncertainty Index rose four points from February to 92, well above its historical average of 68.
“The 20 percent Small Business Deduction and other supportive small business tax provisions in the Working Families Tax Cut Act have had many positives for small business owners,” says NFIB Chief Economist Bill Dunkelberg. “However, the dramatic spike in oil prices has spooked consumers and owners alike. Small business owners are having to absorb those higher input costs and pass them along to their customers.”
KEY FINDINGS
The frequency of reports of positive profit trends fell 11 points from February to a net negative 25 percent (seasonally adjusted), contributing the most to the Optimism Index’s decline.
The net percent of owners expecting better business conditions fell seven points from February to a net 11 percent (seasonally adjusted), the third consecutive monthly decline and the lowest level since October 2024. This was the second biggest contributor to the Index’s decline.
The Employment Index fell in March from 103.5 to 101.6. While the 1.9-point decline is a meaningful turn in labor market conditions, the current reading remains above both the 2025 average of 101.2 and the historical average of 100.
In March, both planned and actual labor compensation decreased from the previous month. A seasonally adjusted net 33 percent reported raising compensation, down one point from February. A seasonally adjusted net 18 percent plan to raise compensation in the next three months, down four points from February and the lowest reading since July 2025.
Sixteen percent (seasonally adjusted) of small business owners plan to make capital outlays in the next six months, down two points from February and the lowest level since November 2009.
A seasonally adjusted net negative 5 percent of all owners reported higher nominal sales in the past three months, down six points from February. This decline ended a string of four consecutive months of improvement.
A net negative 5 percent (seasonally adjusted) of owners plan inventory investment in the coming months, down three points from February and the lowest level since May 2024. This is in step with the decline in those expecting higher sales over the next quarter.
In March, 62 percent of small business owners reported that supply-chain disruptions affected their business to some extent, up three points from February. Three percent reported a significant impact (down two points), 17 percent reported a moderate impact (up three points), 42 percent reported a mild impact (up two points), and 36 percent reported no impact (down three points).
Actual price increases picked up in March following three consecutive months of decline. The net percent of owners raising average selling prices rose one point from February to a net 25 percent (seasonally adjusted), well above its historical average.
In contrast to actual prices, planned prices declined in March, falling four points to a net 24 percent (seasonally adjusted). This was the lowest level since July 2024.
When asked to evaluate the overall health of their business, 13 percent rated it as excellent (up one point), 51 percent as good (down four points), 30 percent as fair (up four points), and 4 percent as poor (down one point).
EMPLOYMENT INDEX
The NFIB Small Business Employment Index fell 1.9 points from February to 101.6. This decline is indicative of further moderation in the labor market.
A seasonally adjusted 32 percent of small business owners reported job openings they could not fill in March, down one point from February. Unfilled job openings remain above the historical average of 24 percent. Twenty-seven percent had openings for skilled workers (down one point), and 12 percent had openings for unskilled labor (up two points).
Looking ahead, a seasonally adjusted net 12 percent of owners plan to create new jobs in the next three months, unchanged from February and close to the average of a net 11 percent. Overall, 52 percent of owners reported hiring or trying to hire in March, down two points from February. Forty-five percent of owners (87 percent of those hiring or trying to hire) reported few or no qualified applicants for the positions they were trying to fill (down one point). Twenty-two percent of owners reported few qualified applicants for their open positions (down three points), and 23 percent reported none (up two points).
In March, both planned and actual labor compensation decreased from the previous month. Despite these declines, planned and actual labor compensation levels remain above their historical averages. A seasonally adjusted net 33 percent reported raising compensation, down one point from February. A seasonally adjusted net 18 percent plan to raise compensation in the next three months, down four points from February and the lowest reading since July 2025. While both planned and actual labor compensation decreased in March, compensation levels remain above their historical average.
CAPITAL EXPENDITURES
Fifty-one percent of owners reported capital outlays in the last six months, down three points from February. Actual capital expenditure levels have declined by nine points since the beginning of this year and remain below the historical average.
Of those making expenditures, 36 percent reported spending on new equipment, 22 percent acquired vehicles, and 14 percent improved or expanded facilities. Nine percent spent money on new fixtures and furniture, and 5 percent acquired new buildings or land for expansion.
SALES, INVENTORY, PRICES, AND PROFITS
A seasonally adjusted net negative 5 percent of all owners reported higher nominal sales in the past three months, down six points from February. This marked the first decline following four consecutive months of improvement. The net percent of owners expecting higher real sales volumes over the next quarter fell one point from February to a net 7 percent (seasonally adjusted).
The net percent of owners reporting inventory gains fell three points from February to a net negative 6 percent, seasonally adjusted. Not seasonally adjusted, 7 percent reported increases in stocks and 16 percent reported reductions. A net negative 5 percent (seasonally adjusted) of owners viewed current inventory stocks as “too low” in March, down three points from February.
A net negative 5 percent (seasonally adjusted) of owners plan inventory investment in the coming months, down three points from February and the lowest level since May 2024.
Actual price increases picked up in March following three consecutive months of decline. The net percent of owners raising average selling prices rose one point from February to a net 25 percent (seasonally adjusted), well above its historical average.
The frequency of reports of positive profit trends fell 11 points from February to a net negative 25 percent (seasonally adjusted). Among owners reporting lower profits, 32 percent blamed weaker sales, 19 percent cited usual seasonal change, and 11 percent cited price change from their product(s) or service(s). Ten percent cited rising material costs, 7 percent cited labor costs, and 7 percent reported other reasons. For owners reporting higher profits, 53 percent cited sales volume, 12 percent cited usual seasonal change, 9 percent cited labor costs, and 9 percent cited price change from their product(s) or service(s) as the source of the gain.
BUSINESS CONDITIONS
In March, the net percent of owners expecting easier credit conditions remained at a net negative 5 percent (seasonally adjusted). A net 5 percent reported their last loan was harder to get than in previous attempts, unchanged from February and close to the historical average of net 6 percent. A net negative 3 percent of owners reported paying a higher interest rate on their most recent loan, unchanged from February. The average interest rate paid on short maturity loans was 7.9 percent in March, down 0.3 points from February. Twenty-four percent of all owners reported borrowing regularly, down one point from February, a historically weak reading.
In March, 11 percent (seasonally adjusted) reported that it is a good time to expand their business, down four points from February and falling below its historical average. This marked the first decline in six months.
Nineteen percent of business owners reported taxes as their single most important problem, unchanged from February and ranking as the top problem. Fifteen percent of owners cited labor quality as their single most important problem, unchanged from February and ranking as the second top issue. Fourteen percent of owners reported that inflation was their single most important business problem, up two points from February and ranking as the third top issue.
