Better Sales Prospects and Easing Cost Pressures Helped Boost Sentiment
Source: Economics Group of Wells Fargo Bank, N.A.
Summary
Small Business Optimism Turns UpThe NFIB Small Business Optimism Index rose slightly in April to 89.7, ending a three-month streak of declines. Although modest, the upturn was driven by higher expectations for sales and easing cost pressures. Inflation is still a challenge, but a drop in the share of businesses raising prices is a welcome sign that price pressures for small firms are not intensifying. Plans to hire, to increase capital spending and to build inventory also improved slightly. Despite the headline edging higher, continued low readings on the underlying components of the index suggest a more moderate pace of economic growth is on the horizon.
Sentiment Moving in the Right Direction, Slowly
- Small business optimism brightened in April after dipping lower each of the previous two months. That said, small business sentiment appears stuck in the doldrums. The NFIB Small Business Optimism Index came in at 89.7 in April, well below the index’s long term historical average of 98.
- Steady demand is one factor helping to lift sentiment. The net percentage of businesses expecting better sales traffic over the next three months jumped six points higher in April, although it remains firmly in negative territory. Depressed sales correspond with reports of weakening earnings, which generally remain below pre-pandemic levels.
- Inflation is at the top of mind for small business owners and remains their single most important problem. That said, April’s survey supports our view that inflation will continue to slowly subside this year. The net percentage of firms raising their prices fell back in April after posting a seven point increase the prior month. Planned price hikes remain historically elevated but also took a step back to the lowest level in a year.