According to a report released on Tuesday, U.S. small business sentiment reached its lowest point since May 2023 in January. The National Federation of Independent Business monthly sentiment index fell from 91.9 in December to 89.9, marking the largest decrease since December 2022. Despite this, the index remains below its 50-year average of 98 for a 25th consecutive month.
Small business owners in January identified labor quality and inflation as their top concerns. Sales conditions have tightened, with the share of owners reporting profit growth falling to a net negative 30% from a net negative 25% in December. In response to these challenges, small business owners are making adjustments to their operations.
Despite these challenges, there is some good news: the share of owners citing inflation as their top concern dropped by 3 points to 20%. This coincides with the Federal Reserve’s rate hike campaign in 2022 to curb inflation, though the Fed has since signaled that rate hikes are over and it should be in a position to lower rates later this year.
Looking ahead, the portion of owners expecting better business conditions in the next six months fell by two points to negative 38%. Additionally, the share of owners who expect higher real sales dropped by twelve points to negative 16% in January. These statistics paint a sobering picture of the challenges faced by small business owners as they navigate an uncertain economic landscape.