A recent report by Reuters has revealed that the sentiment index for U.S. small businesses fell to its lowest point since May 2023 in January. This decline from 91.9 in December to 89.9 represents a significant decrease, and it is the largest drop since December 2022. Despite this, the index remains below its 50-year average of 98 for a 25th-straight month, indicating ongoing economic challenges faced by small business owners.
According to the NFIB’s chief economist, Bill Dunkelberg, labor costs and slowed sales have resulted in tight profit margins for business owners. Inflation and labor quality were cited as the top concerns for business owners in January, with inflation dropping by just three points from its previous high of 23%. However, concerns around interest rates and tightened credit conditions for small business borrowers have been on the rise due to the Federal Reserve’s rate hike campaign. While the Fed has signaled that rate hikes are over, it remains uncertain when interest rates will fall again.
On a six-month basis, the portion of owners expecting better business conditions fell by two points to negative 38%, while the share of owners who expect higher real sales fell twelve points to negative 16%. These declines suggest that optimism among small business owners has dropped significantly as they continue to face ongoing economic challenges such as inflation and labor costs.