Hiring Struggles and Tax Burdens Weigh on Business Owners
The NFIB Small Business Optimism Index fell 3.3 points in March to 97.4, falling below the 51-year average of 98. March’s drop reflected the largest monthly decline since June 2022. Of the 10 components included in the index, only two increased, seven decreased and one stayed the same. The Uncertainty Index fell 8 points to 96 from February’s second highest reading of the index.
Labor quality was cited as the top concern for many small business owners in March, unchanged from February with 19% reporting it as the most important problem. In March, 40% of small business owners reported jobs they could not fill, up 2 percentage points from February. The challenge of filling open positions remains acute, particularly in manufacturing, transportation and construction. Taxes were the second most important concern, with 18% reporting them as their most important problem, up 2 points from February.
A net 38% of small business owners reported raising compensation, up 5 percentage points from February. Profitability remained under pressure, with a net negative 28% reporting positive profit trends, 4 points worse than in February. Of those reporting lower profits, 35% claimed weaker sales, while 18% cited ordinary seasonal adjustments. A net 26% of small business owners planned price hikes in March, down 6 percentage points from February after January had the highest reading in 11 months. On the other hand, 6% reported their last loan was harder to get than previous attempts, up 4 points from February and the largest monthly increase since September 2023, while a net 4% of owners reported paying a higher rate on their most recent loan.
The outlook for general business conditions fell 16 points to 21. The share of firms saying it is a good time to expand fell 3 percentage points to 9%. One thing is becoming clear: uncertainty is here to stay. This uncertainty has been causing turbulence in small business optimism. Since last October, “Expected Business Conditions” has moved from net negative 5% to net 52% in December, and now back down to net 21%.