NFIB Small Business Survey: Inflation Remains Top Problem

The headline number for the NFIB Small Business Optimism Index rose to 91.5 in June. Despite being the highest level of 2024 so far, the latest reading marks the 30th consecutive month the index has been below the series historical average of 97.9. The latest reading was higher than the forecast of 90.3. The index is at the 14th percentile in this series.

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

“Main Street remains pessimistic about the economy for the balance of the year,” said NFIB Chief Economist Bill Dunkelberg. “Increasing compensation costs has led to higher prices all around. Meanwhile, no relief from inflation is in sight for small business owners as they prepare for the uncertain months ahead.”

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 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. Over the last few years, as a result of the COVID pandemic and high inflation, small business sentiment closely resembles that of the Great Recession and its aftermath.

NFIB Optimism Index

The index has shown relative stability over the last 25 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 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.

NFIB Optimism and Consumer Confidence

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.

NFIB Optimism and Consumer Sentiment

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.

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