Small business owners say economic uncertainty growing

State legislators are being urged to take action to ease the increasing economic uncertainty felt by small business owners. The latest Small Business Optimism Index, released today by the National Federation of Independent Business (NFIB), indicates a decline of 2.1 points in February, bringing the index to 100.7.

“Inflation and costs continue to plague small business operators in Arizona,” said Chad Heinrich, state director for NFIB in Arizona. “We continue to look toward our state legislators in the current session to do everything they can to reduce costs for small business owners.”

While this marks the fourth consecutive month that the index has remained above its 51-year average of 98, it is still 4.4 points lower than its recent peak of 105.1 in December. Additionally, the Uncertainty Index climbed four points to 104, making it the second-highest recorded level.

“Uncertainty is high and rising on Main Street and for many reasons. Those small business owners expecting better business conditions in the next six months dropped and the percent viewing the current period as a good time to expand fell, but remains well above where it was in the fall. Inflation remains a major problem, ranked second behind the top problem, labor quality.”

The NFIB’s Small Business Optimism Index serves as a crucial indicator of the overall state of America’s small business economy. This index is closely monitored by the Federal Reserve, congressional leaders, administration officials, and state legislatures, as it provides critical insights into the health of Main Street enterprises.

Small businesses employ half of all American workers, generate more net new jobs than large corporations, and are often the first employers for many workers.

Commonly referred to as the Small Business Economic Trends Report, the index is a national snapshot of NFIB-member small business owners and is not broken down by state. The typical NFIB member operates a small business with one to nine employees and reports annual gross sales of approximately $500,000.

Key Findings

• The net percentage of business owners expecting economic improvement dropped by ten points from January, reaching a net 37% (seasonally adjusted).

• Only 12% of business owners (seasonally adjusted) believe now is a good time to expand, reflecting a five-point decline from January. This marks the most significant monthly drop since April 2020.

• Inflation remains a concern, with 16% of business owners identifying it as their biggest operational challenge. This figure is two points lower than in January, positioning labor quality as the top issue. The last time inflation ranked this low was in October 2021.

• Planned price increases have surged, with 29% of business owners (seasonally adjusted) intending to raise prices in the next three months. This represents a three-point increase from January and marks the highest reading in 11 months.