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Small Business Optimism Improves Slightly in February

  • NFIB Small Business Optimism Index shows slight improvement in February
  • Businesses report challenges in finding qualified workers as their main problem
  • Weaker earnings trends continued, but most respondents satisfied with credit situation

Summary by Dirk Langeveld

Optimism among small business owners ticked up slightly in February, according to a report from the National Federation of Independent Business. However, the reading remained below the historic average as companies continued to grapple with the effects of the COVID-19 pandemic.

The NFIB Small Business Optimism Index for February, based on responses from 678 participating firms, rose 0.8 points from January to 95.8. This was below the 47-year average reading of 98.

Earnings trends have improved five points over the past months, but on net 11 percent of respondents said their earnings have not been higher compared to the previous three months. Among those reporting lower earnings, 46 percent blamed weaker sales, 21 percent said it was associated with a typical seasonal change in earnings, and 8 percent cited labor costs. Those reporting higher earnings were most likely to credit better sales (65 percent), the seasonal change (17 percent), and higher prices (7 percent).

Businesses frequently reported problems in finding qualified workers. Fifty-six percent reported that they are hiring or trying to hire, up five points from January, but 40 percent said they had open positions that they had not been able to fill. Labor quality was the problem businesses were most likely to say they were experiencing, with 24 percent citing this issue.

Challenges in finding workers were likely contributing to a trend of higher compensation. On net, 25 percent said they had increased their compensation, while a net share of 19 percent plan to within the next three months.

Fifty-seven percent reported that they had done capital spending in the past six months. Forty percent had purchased equipment, while 28 percent had spent funds on vehicles and 12 percent had invested in facilities.

A net share of 25 percent said they have increased sales price, with a net share of 34 percent planning to do so in the next three months. This trend was most common in retail, where 39 percent of sector respondents said they had increased prices.

Most respondents were satisfied with their current financial conditions, with 58 percent saying they weren’t in need of a loan. Twenty-eight percent said all of their credit needs were met, and only 2 percent felt their borrowing needs were not being met.

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