The recent survey from the National Federation of Independent Business has revealed a concerning trend in the US small business sector, with optimism plummeting more than analysts had anticipated. The small business optimism index saw a decrease of 2.1 points, settling at 100.7 in February, contrasting with the expected figure of 101.
This decline in optimism comes hand in hand with a notable spike in uncertainty, which rose 4 points to 104, marking the second-highest reading on record. 'Uncertainty is high and rising on Main Street for many reasons,' stated Bill Dunkelberg, Chief Economist at NFIB. He emphasized that inflation remains a significant hurdle, now ranked as the second most pressing issue following labor quality.
This dual concern over inflation and labor is shaping the landscape of small businesses, making it increasingly challenging for owners to navigate their operational strategies. In a related development on Tuesday, President Donald Trump announced plans to double the proposed tariffs on steel and aluminum imported from Canada to a staggering 50%, in retaliation to Ontario's recent implementation of a 25% duty on electricity exports to the US.
This move demonstrates the intensifying tensions in trade relations between the US and Canada, further complicating the economic landscape for small businesses. Moreover, last week, Trump declared temporary tariff exemptions for certain goods imported from Mexico and Canada, while simultaneously increasing the levy on imports from China.
These measures have reignited trade conflicts, creating additional layers of uncertainty for business owners across the nation. According to TD Economics Economist Admir Kolaj, 'With trade conflicts reigniting in March, the level of uncertainty has the potential to rise even higher.' This mounting uncertainty is anticipated to adversely affect small business confidence, potentially leading to more cautious investment and hiring decisions in the near future. The NFIB survey indicated that 19% of small business owners now view labor quality as their most significant issue, which is up by one point since January.
In February, about 16% of owners flagged inflation as their foremost concern, representing a decline of two points from the previous month. Notably, this reflects a marked reduction in the perceived severity of inflation issues, the lowest since October 2021, according to the NFIB findings. Kolaj elaborated, stating, 'The rise of input costs from tariffs and counter-tariffs may impact pricing plans, with today's survey carrying some evidence of rising price pressures.' This sentiment raises questions regarding the Federal Reserve's monetary policy decisions as they prepare to assess the implications of these competing economic forces. Market analysts are largely anticipating that the Federal Reserve's monetary policy committee will opt to maintain its current benchmark lending rate in the upcoming meeting, as indicated by the CME FedWatch tool.
Consequently, the net percentage of owners expecting the economy to improve has plummeted by 10 points, now standing at just 37%. Additionally, the survey indicated that only 19% of small business owners plan to make capital outlays in the next six months, which marks a decline of one point from January, further illustrating the somber outlook that small businesses are facing as they grapple with heightened uncertainty and economic challenges..