The NFIB small business optimism index is up to 90.9 in February after 90.3 in January. The reading is above the consensus of 89.9 in an Econoday survey. The increase is slight, but does suggest some improvement in underlying conditions. The report said that inflation remains the"single most important problem" for small business operators, although"Evidence of some easing in inflation pressure" has been seen. The report also noted that the index level remains below the 49-year average of 98 and has been there for fourteen straight months.

Index components were generally little changed in February with normal month-to-month variation of a point or two. Five of 10 components are higher, four are lower and one is unchanged.

The largest gains are up 5 points to minus 9 percent for expectations for higher sales and up 3 points to minus 23 percent for the earnings trend. The largest decrease is a 3 point decline in current inventory to minus 3 percent.

Also notable is that current job openings are up 2 points to 47 percent in February the highest since 49 percent in August 2022. Plans for new hires are down 2 points to 17 percent in February, and in line with recent months. Expectations for the economy to improve are down 2 points to minus 47 percent. Credit conditions are up 2 points to minus 6 percent.

Overall, the tone of the report continues to reflect challenges for small businesses and a high level of uncertainty. The uncertainty index is down 5 points to 71 in February from 76 in January. However, it remains at close to levels seen since August 2022 as the FOMC raises interest rates and has an impact on interest-sensitive sectors. Until inflation is tamed or at least until the outlook for prices is more hopeful small businesses are going to remain cautious.

The small business optimism index has been below the historical average of 98 for 13 months in a row. February's consensus is 89.9, just below 90.3 in January.

The small business optimism index is compiled from a survey that is conducted each month by the National Federation of Independent Business (NFIB) of its members. The index is a composite of 10 seasonally adjusted components based on the following questions: plans to increase employment, plans to make capital outlays, plans to increase inventories, expect economy to improve, expect real sales higher, current inventory, current job openings, expected credit conditions, now a good time to expand, and earnings trend.

Small businesses are responsible for a majority of new job creation and the NFIB focuses on this sector of the economy. The direction of the health of small businesses can portend changes in the stock market - especially small caps.