Small Business Optimism Index
Small Business Optimism Index
Overview
The NFIB Research Foundation has collected Small Business Economic Trends data with quarterly surveys since the 4th quarter of 1973 and monthly surveys since 1986. Survey respondents are drawn from NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in March 2025.
March 2025: Small Business Optimism Slips
The NFIB Small Business Optimism Index declined by 3.3 points in March to 97.4, falling just below the 51-year average of 98. The Uncertainty Index decreased eight points from February’s second highest reading to 96.
The implementation of new policy priorities has heightened the level of uncertainty among small business owners over the past few months. Small business owners have scaled back expectations on sales growth as they better understand how these rearrangements might impact them.
NFIB Chief Economist Bill Dunkelberg
The percent of small business owners reporting taxes as their single most important problem rose two points from February to 18%. The number of owners reporting “Taxes” as their top small business issue has not been this high since November 2021.
The net percent of owners expecting better business conditions fell 16 points from February to a net 21% (seasonally adjusted). This is the third consecutive monthly decline and the largest monthly decline since December 2020.
When asked to rate the overall health of their business, 11% of owners reported excellent (unchanged), and 53% reported good (down two points). Thirty-one percent reported the health of their business was fair (up four points) and 4% reported poor (down two points).
The percent of small business owners reporting labor quality as the single most important problem for their business was unchanged from February at 19%, remaining the top issue, with taxes one point behind.
The net percent of owners expecting higher real sales volumes fell 11 points from February to a net 3% (seasonally adjusted). This is the third consecutive month real sales expectations declined after surging from recession levels after the election.
Sixteen percent of owners reported that inflation was their single most important problem in operating their business (higher input costs), unchanged from February and falling from its rank as the second top issue.
The net percent of owners raising average selling prices fell six points from February to a net 26% seasonally adjusted. This is the largest monthly decrease since December 2022, but still historically high.
Seasonally adjusted, a net 30% plan price hikes in March, up one point from February and the highest reading since March 2024.
A net 6% reported their last loan was harder to get than in previous attempts, up four points from February and the largest monthly increase since September 2023.
Twenty-eight percent of all owners reported borrowing on a regular basis, up four points from February’s lowest reading since May 2022.
As reported in NFIB’s monthly jobs report, a seasonally adjusted 40% of all small business owners reported job openings they could not fill in March, up two points from February. Of the 53% of owners hiring or trying to hire in March, 87% reported few or no qualified applicants for the positions they were trying to fill. A seasonally adjusted net 12% of owners plan to create new jobs in the next three months, down three points from February.
The percent of small business owners reporting labor quality as the single most important problem for business was unchanged from February at 19%, remaining the top issue, with taxes just one point behind.
Labor costs reported as the single most important problem for business owners fell one point in March to 11%, only two points below the highest reading of 13% reached in December 2021. Seasonally adjusted, a net 38% reported raising compensation, up five points from February. A seasonally adjusted net 19% plan to raise compensation in the next three months, up one point from February.
Fifty-nine percent of owners reported capital outlays in the last six months, up one point from February. Of those making expenditures, 43% reported spending on new equipment, 27% acquired vehicles, and 16% improved or expanded facilities. Thirteen percent spent money on new fixtures and furniture and 5% acquired new buildings or land for expansion. Twenty-one percent (seasonally adjusted) plan capital outlays in the next six months, up two points from February.
A net negative 11% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, up one point from February and the highest reading since March 2024. The net percent of owners expecting higher real sales volumes fell 11 points from February to a net 3% (seasonally adjusted). This is the third consecutive month real sales expectations declined after surging from recession levels after the election.
The net percent of owners reporting inventory gains improved three points from February to a net negative 3%, seasonally adjusted. Not seasonally adjusted, 13% reported increases in stocks and 19% reported reductions. A net negative 7% (seasonally adjusted) of owners viewed current inventory stocks as “too low” in March, down two points from February. A net negative 1% (seasonally adjusted) of owners plan inventory investment in the coming months, unchanged from February.
Seasonally adjusted, a net 30% plan price hikes in March, up one point from February and the highest reading since March 2024. The net percent of owners raising average selling prices fell 6 points from February to a net 26%, seasonally adjusted. This is the largest monthly decrease since December 2022. Sixteen percent of owners reported that inflation was their single most important problem in operating their business, unchanged from February. Unadjusted, 10% of owners reported lower average selling prices and 38% reported higher average prices.
The frequency of reports of positive profit trends was a net negative 28% (seasonally adjusted), four points worse than in February. Among owners reporting lower profits, 35% blamed weaker sales, 18% cited usual seasonal change, 11% blamed the rise in the cost of materials, and 8% cited labor costs. For owners reporting higher profits, 55% credited sales volumes, 16% cited usual seasonal change, and 11% cited higher selling prices.
Three percent of owners reported that financing and interest rates were their top business problem in March, unchanged from February. Twenty-eight percent of all owners reported borrowing on a regular basis, up four points from February’s lowest reading since May 2022. A net 6% reported their last loan was harder to get than in previous attempts, up four points from February and the largest monthly increase since September 2023. A net 4% reported paying a higher rate on their most recent loan.
Nine percent (seasonally adjusted) of owners reported that it is a good time to expand their business, down three points from February. When asked to rate the overall health of their business, 11% of owners reported “excellent” and 53% reported it as “good”. Thirty-one percent reported it as “fair”, and 4% reported it as “poor.”
The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since the fourth quarter of 1973 and monthly surveys since 1986. Survey respondents are randomly drawn from NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in March 2025.
Labor Markets
In March, 40 percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, up 2 points from February. Thirty-three percent have openings for skilled workers (up 2 points) and 13 percent have openings for unskilled labor (unchanged). The difficulty in filling open positions is particularly acute in the construction, transportation, and manufacturing industries. Openings were the lowest in the agriculture and wholesale industries. Job openings in construction were up 10 points from last month and up 12 points from the prior year. Also notable, job openings in the transportation sector rose 23 points from the prior month to 53 percent. More firms reduced their employment levels than increased them (14.4 percent reduced while 9.6 percent increased). A seasonally adjusted net 12 percent of owners plan to create new jobs in the next three months, down 3 points from February. The last time hiring plans were this low was April 2024. Job creation plans are in weak territory compared to recent history. Overall, 53 percent reported hiring or trying to hire in March, unchanged from February. Forty-seven percent (87 percent of those hiring or trying to hire) of owners reported few or no qualified applicants for the positions they were trying to fill (down 1 point). Twenty-six percent of owners reported few qualified applicants for their open positions (down 1 point) and 21 percent reported none (unchanged). The percent of small business owners reporting labor quality as the single most important problem for their business was unchanged from February at 19 percent, remaining the top issue with taxes 1 point behind. Labor costs reported as the single most important problem for business owners fell 1 point to 11 percent, only 2 points below the highest reading of 13 percent reached in December 2021.
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Capitol Spending
Fifty-nine percent reported capital outlays in the last six months, up 1 point from February. Of those making expenditures, 43 percent reported spending on new equipment (up 6 points), 27 percent acquired vehicles (down 3 points), and 16 percent improved or expanded facilities (up 3 points). Thirteen percent spent money on new fixtures and furniture (up 1 point), and 5 percent acquired new buildings or land for expansion (unchanged). Twenty-one percent (seasonally adjusted) plan capital outlays in the next six months, up 2 points from February. Although there was improvement, planned capital outlays remain historically low.
Inflation
The net percent of owners raising average selling prices fell 6 points from February to a net 26 percent seasonally adjusted. This is the largest monthly decrease since December 2022. Sixteen percent of owners reported that inflation was their single most important problem in operating their business (higher input costs), unchanged from February. Currently, inflation is fairly low (under 3 percent), but prices are, for the most part, still 20 percent higher than in 2020. Unadjusted, 10 percent (up 4 points) reported lower average selling prices and 38 percent (unchanged) reported higher average prices. Price hikes were most frequent in the finance (59 percent higher, 6 percent lower), retail (52 percent higher, 5 percent lower), wholesale (46 percent higher, 13 percent lower), and construction (45 percent higher, 10 percent lower) sectors. Seasonally adjusted, a net 30 percent plan price hikes in March, up 1 point from February and the highest reading since March 2024. Demand is still too strong to trigger widespread price reductions.
Credit Markets
A net 6 percent reported their last loan was harder to get than in previous attempts, up 4 points from February and the largest monthly increase since September 2023. Three percent reported that financing and interest rates were their top business problem in March (unchanged). A net 4 percent of owners reported paying a higher rate on their most recent loan, unchanged from February. The average rate paid on short maturity loans was 8.9 percent, up 0.1 (10 basis points) from February. Twenty-eight percent of all owners reported borrowing on a regular basis, up 4 points from February’s lowest reading since May 2022. High mortgage rates have slowed housing activity, a damper on GDP growth.
Compensation and Earnings
Seasonally adjusted, a net 38 percent reported raising compensation, up 5 points from February. Small business owners are feeling pressured to retain and attract employees. But for most firms, labor costs are the largest cost in their profit/loss calculation. A seasonally adjusted net 19 percent plan to raise compensation in the next three months, up 1 point from February. Overall, wage cost increases continue to pressure the bottom line for owners. The frequency of reports of positive profit trends was a net negative 28 percent (seasonally adjusted), which was 4 points worse than February. More “bottom lines” are pointed down than are headed up. Among owners reporting lower profits, 35 percent blamed weaker sales, 18 percent cited usual seasonal change, 11 percent cited the rise in the cost of materials, and 8 percent cited labor costs. For owners reporting higher profits, 55 percent credited sales volumes, 16 percent cited usual seasonal change, and 11 percent cited higher selling prices.
Sales and Inventories
A net negative 11 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, up 1 point from February and the highest reading since March 2024. However, reports of sales gains are in recession territory. The net percent of owners expecting higher real sales volumes fell 11 points from February to a net 3 percent (seasonally adjusted). This is the third consecutive month real sales expectations declined after surging from recession levels after the election. The net percent of owners reporting inventory gains improved 3 points from February to a net negative 3 percent (seasonally adjusted). This is due to weaker sales and reduced replacement of sold inventories. Not seasonally adjusted, 13 percent reported increases in stocks (up 5 points) and 19 percent reported reductions (unchanged). Stocks are still being liquidated to meet customer demand. The impact of new tariffs is yet to be felt. A net negative 7 percent (seasonally adjusted) of owners viewed current inventory stocks as “too low” in March, down 2 points from February. With more owners viewing stocks as excessive than too low, inventory accumulation will be weak. A net negative 1 percent (seasonally adjusted) of owners plan inventory investment in the coming months, unchanged from February. Prospects for sales growth don’t support inventory investment.
Commentary
This year will be one ruled by uncertainty. Global and domestic actions are generating insecurities in abundance, both political and economic. President Trump’s administration is rearranging the deck chairs at a record pace. Is there an “iceberg” looming ahead or will we sail through to a restructured economy safely? Since 1986, NFIB’s Uncertainty Index (based on the percent of respondents reporting “uncertain” or “don’t know” to six questions) has averaged 68. But, since 2016 it has averaged 80 and reached its highest level of 110 in October 2024.
NFIB’s Small Business Optimism Index declined in March to 97.4, just below the 51-year average of 98, three months after reaching a near record high of 105.1 in December. Since last October, the Index component “Expected Business Conditions” has moved from net negative 5 percent to net 52 percent in December, and now back down to net 21 percent, “expectational whiplash!”
Inflation remains a sticky problem. The Consumer Price Index rose to 9.1 percent in June 2022, and has fallen to below 3 percent but not yet reaching the Fed target of 2 percent. From 2020 to 2024, the level of prices (CPI) increased 20 percent (cumulative). This delivered a huge reduction in purchasing power to consumers who now wish to see prices fall, not just rise more slowly. The net percent of owners raising selling prices was 26 percent in March, much lower than the 66 percent level reached in March 2022, but still historically high. From 1986 to 2020, the average was 8 percent! It is no surprise that historically high numbers of small business owners have recently picked inflation as their most important problem.
Credit availability, and not credit costs, is the most important financial variable to small firms. During the Fed’s fight against inflation in the early 1980s, owners reported paying interest averaging 19 percent, compared to 8.9 percent in March.
As the deck chairs continue to move, it will be a turbulent time, even on Main Street.
