NFIB Small Business Survey: Inflation Continues to Hinder Small Business Operations

The headline number for the NFIB Small Business Optimism Index rose to 89.7 in April, the first monthly increase of the year. The latest reading was better than the forecast of 88.1 but marked the 28th straight month the index has been below the series average of 98.0. The index is at the 8th percentile in this series.

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

“Cost pressures remain the top issue for small business owners, including historically high levels of owners raising compensation to keep and attract employees,” said Bill Dunkelberg, NFIB Chief Economist. “Overall, small business owners remain historically very pessimistic as they continue to navigate these challenges. Owners are dealing with a rising level of uncertainty but will continue to do what they do best – serve their customers.”

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 23 months, staying within the range of 88.5 to 92.1. With that being said, these recent levels fall on the historically lower side, ranking between the 4th and 17th 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).

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