The NFIB Small Business Optimism Index dropped for a fourth straight month, falling to 95.8 in April. The latest reading was above the 94.9 forecast but keeps the index below the historical average for a second straight month. The index is at the 31st percentile of the series.
Key Takeaways from March's report:
- The net percent of small business owners expecting better business conditions fell to its lowest level since October.
- The net percent of small business owners expecting higher sales volume fell for a fourth consecutive month.
- The percent of small businesses planning capital outlays fell to its lowest level since April 2020.
- Labor quality remained the top issue for small businesses for a third straight month while inflation ranked as the third top issue with its lowest reading since September 2021.
- The number of small business owners reporting the cost or availability of insurance as their single most important problem reached its highest level since March 2020.
- Overall health of their business: Excellent (13%), Good (56%), Fair (27%), Poor (4%)
The first chart below tracks the NFIB Small Business Optimism Index since 1986, with a baseline level of 100. Notice the sharp declines in sentiment during the Great Financial Crisis and the COVID-19 pandemic. In contrast, the index showed relative resilience during the 2000-2003 Tech Bubble collapse. Following the Great Recession, small-business sentiment remained weak for an extended period, a pattern that closely resembled the past two years of pandemic-related disruptions and high inflation. Another interesting pattern to the index was the nearly identical jumps following the 2016 and 2024 elections.
The average monthly change in the NFIB Small Business Optimism Index is 1.4 points. To filter out short-term fluctuations, the chart below presents a 3-month moving average alongside the individual monthly values, represented by dots.
NFIB Small Business Survey Components
The NFIB Small Business Optimism Index is composed of 10 components. In April, three components increased, six declined, and one was unchanged.
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.
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.
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.
