Dive Brief:

• Optimism among owners of small businesses sagged last month, with the percentage of owners saying now is a good time to expand business falling 5 percentage points to 12% in the worst slump since the early days of the pandemic in April 2020, the National Federation of Independent Business said Tuesday.
• With inflation persisting above the Federal Reserve’s 2% goal, the proportion of small businesses raising average selling prices surged in the largest monthly increase since April 2021 and third highest gain since the start of the monthly survey in 1986, the NFIB said.
• “Uncertainty is high and rising on Main Street and for many reasons,” NFIB Chief Economist Bill Dunkelberg said in a statement. “Inflation remains a major problem.”

Dive Insight:

Small businesses, which generate 43% of U.S. economic growth, pulled back on plans for hiring and capital spending last month, “all consistent with the general tone of the financial press,” the NFIB said.

“The economy is still growing, but at a slower and slower rate — storm clouds are forming,” according to the NFIB.

Several economists, including those at the Conference Board and Bank of America, have recently warned that Trump administration tariffs, immigration and other policy shifts risk slowing growth and spurring inflation.

The increase in costs and prices from tariffs “could impact both the import of products and materials for resale and manufacturing and the export of products overseas,” Mark Valentino, business banking head at Citizens Bank, said in an email.

Also, “immigration policy is closely connected to labor costs and small businesses remain cautious in this regard as well,” he said after release of the NFIB survey results. “Business owners are reevaluating vendor contracts, labor force and borrowing strategies.”

Consumers — also adapting to the new policy landscape — cut back on spending in January. Last month, sentiment among both consumers and businesses fell.

U.S. households in February voiced more pessimism about their year-ahead financial situations than in January, and “unemployment, delinquency and credit access expectations deteriorated notably,” the New York Fed said Monday.

Consumer expectations for unemployment, or the probability that unemployment will rise during the next year, jumped 5.4 percentage points to 39.4%, its highest level since September 2023, the New York Fed found in a monthly survey.

Meanwhile, the share of households expecting their financial situation to worsen during the coming year rose to 27.4%, the highest level since November 2023, according to the New York Fed.

Data on flagging household and business confidence, as well as signs of slowing growth, prompted the Atlanta Fed to scrap its Feb. 19 forecast for a 2.3% annual rate of economic growth during the first quarter. It now expects the economy during Q1 to shrink 2.4%.

Among small businesses, the mood has swung from pessimism in October, to post-election optimism in December, to the current grim outlook, the NFIB said.

“Small business owners have experienced uncertainty whiplash over the last four months,” the NFIB said in a commentary.

While noting the strain from inflation, 38% of small businesses reported difficulty filling job openings, an increase of 3 percentage points compared with January and the highest level since August 2024, the NFIB said. They consider labor costs their biggest challenge.

“On Main Street, compensation will continue to put pressure on owners to raise prices, a negative for the inflation fight,” the NFIB said. “Wage hikes are necessary to maintain current employment and, hopefully, to help fill vacancies.”

The federation survey revealed some bright spots. Financing and interest rates were the top business problem last month for only 3% of respondents, the same proportion as in January.

“Overall, credit markets remain friendly toward small businesses,” the NFIB said.