The NFIB Small Business Optimism Index dropped 2.1 points from a month earlier to 100.7 in February 2025, marking the lowest level since October 2024, just before the election, and coming in below market expectations of 101.
US small business optimism weakens in February
The decline reflected growing concerns among small business owners about economic uncertainty, regulatory changes, and shifting consumer demand. Additionally, the Uncertainty Index surged by 4.0 points to 104, reaching its second-highest level on record, underscoring the heightened unpredictability business owners face in the current environment.
Expectations for improved business conditions over the next six months weakened further, with more firms expressing skepticism about future sales growth and profitability. The percentage of small business owners viewing the current period as a good time to expand also decreased, though it remains above fall 2024 levels when pre-election uncertainty led to a sharp pullback in investment plans. Hiring intentions also moderated slightly, as firms struggled to fill open positions amid a tight labor market and rising wage pressures.
Inflation remains a significant challenge
Inflation continues to be a significant challenge, ranking as the second most pressing issue after labor quality. Many small business owners reported difficulty in passing higher costs onto consumers, leading to compressed profit margins. While input costs such as raw materials and energy prices have shown some signs of stabilization, persistent wage inflation remains a headwind for small businesses, particularly in the service and construction sectors.
Focus on fiscal and trade policies
Looking ahead, business owners are bracing for potential shifts in fiscal and trade policy following the new administration's economic reforms, with many expressing concerns about the impact of tax policy changes and regulatory adjustments. As uncertainty remains elevated, analysts expect small business sentiment to remain volatile in the coming months, with future optimism largely hinging on economic data releases, inflation trends, and policy clarity from Washington.
