(TNND) — Small business optimism was essentially flat month over month in February as deteriorating sales expectations canceled out improved profits from the previous quarter, the latest report from the National Federation of Independent Business showed Tuesday.
The NFIB’s optimism index is based on surveys from small companies across a broad scope of industries.
The February index, which is made up of 10 components, fell half a point from January to register a 98.8. That’s the second straight month of small movements down toward the long-term average of 98.
The optimism index sat at 100.7 a year ago, but its current level is still higher than any of the four Februarys before that.
A decline in sales expectations was the main contributor to the small drop in the optimism index, said NFIB Executive Director of Research Holly Wade.
“So, fewer small business owners are feeling confident about increased sales in the next quarter,” she said. “But we did see an increase in actual sales the prior quarter. So, that was a good sign, which corresponded with a better number for earnings trends.”
The monthly changes in expected sales and earnings trends were essentially the same, so the two served as counterweights in the optimism index.
The better earnings stemmed from higher sales and fewer inflation pressures, Wade said.
But that was before higher gas prices came along in early March because of the war in Iran.
“That’s a huge issue for a lot of small business owners,” Wade said of higher gas prices.
Higher gas prices might add to existing headwinds for small business owners, such as a tight labor market, taxes, regulations, and a shifting trade policy, Wade said.
The NFIB asks small businesses every month to pick their single most important problem. Taxes topped the list in February, cited by nearly a fifth of small businesses as their biggest problem.
Labor quality, inflation, and poor sales were among the most-cited problems, ranging from 11% to 15% in the survey.
The NFIB’s employment index ticked up in February, now above its historical average and a couple of points above its 2025 average. Wade said a higher employment index signals a tighter labor market.
“And in this case, a lot of that increase was related to higher compensation pressures,” Wade said. “So, more small business owners are increasing compensation, planning to increase compensation. Those are at higher levels than we typically see.”
Wages are the major component of compensation, but a lot of small business owners are also dealing with sticker shock over health insurance, Wade said.
Insurance concerns subsided in February after popping in January. Just 9% of small businesses cited insurance as their top problem last month, after 13% did so in January.
Wade said their insurance category in the survey includes all kinds of insurance, not just for employee health coverage.
But, she said, health insurance is one of the major drivers of the concern.
“And we continue to see just in the comments section of our survey that there are a lot of complaints, more than we typically see, of insurance premium increases and how they’re trying to deal with those,” Wade said.
The NFIB’s uncertainty index decreased three points from January to 88 but remained elevated.
Wade said capital spending declined last quarter, and more small business owners are holding on to their cash.
Some of that could be small business owners holding out for lower interest rates, but some of it stems from a lack of confidence about future business conditions, Wade said.
“A lot of them are sitting on the sidelines and kind of waiting for the environment to be more supportive of investing in their business,” she said.
Asked to evaluate the overall health of their business, 12% of owners rated it as “excellent,” 55% rated it as “good,” 26% as “fair” and 5% as “poor.”
