NFIB Small Business Survey: Optimism Falls to Lowest Level Since 2012

The headline number for the NFIB Small Business Optimism Index fell to 88.5 in March, the lowest level since 20212. The latest reading was worse than the forecast of 88.8 and marked the 27th straight month the index has been below the series average of 98.0. The index is at the 4th percentile in this series.

Here is an excerpt from the opening summary of the news release.

“Small business optimism has reached the lowest level since 2012 as owners continue to manage numerous economic headwinds,” said NFIB Chief Economist Bill Dunkelberg. “Inflation has once again been reported as the top business problem on Main Street and the labor market has only eased slightly.”

The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize the dramatic change in small-business sentiment that accompanied the Great Financial Crisis and now the COVID-19 pandemic. Compare, for example, the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings following the Great Recession that ended in June 2009. A similar pattern happened beginning in 2019 and dropped drastically during the COVID-19 pandemic.

NFIB Optimism Index

The index has shown relative stability over the last 21 months, staying within the range of 89.0 to 92.1. With that being said, these recent levels fall on the historically lower side, ranking between the 5th and 16th percentile in the series. The next chart is a closer look at the indicator since the turn of the century.

NFIB Optimism Index Since 2000

The average monthly change in this indicator is 1.3 points. To smooth out the noise of volatility, here is a 3-month moving average of the Optimism Index along with the monthly values, shown as dots.

NFIB Optimism Index Moving Average

Business Optimism and Consumer Confidence

The next chart is an overlay of the Business Optimism Index and the Conference Board Consumer Confidence. The consumer measure is the more volatile of the two, so it is plotted on a separate axis to give a better comparison of the two series from the common baseline of 100.

NFIB Optimism and Consumer Confidence

These two measures of mood have been highly correlated since the early days of the Great Recession. The two have diverged at brief periods and been highly correlated at others. A decline in Small Business Sentiment was a long leading indicator for the previous two recessions (but clearly not for the Covid-19 recession).

Read more updates by Jen Nash