The NFIB small business optimism index is down 2.1 points to 100.7 in February from January, slightly below the consensus of 101.0 in the Econoday survey of forecasters. The February index remains above the 51-year average of 98 for the fourth month in a row but has declined from the near-term peak of 105.1 in December 2024. The NFIB uncertainty index is up 4 points to 104 in February from January, rising for a second month in a row, although not yet returning to the record high of 110 in October 2024.

In February, 7 of the 10 index components are down and 3 are higher. The largest declines are 10 points to 37 percent for expectations for the economy to improve, 6 points to 14 percent for expectations for higher sales, and 5 points to 12 percent for now is a good time to expand. Elevated uncertainty about the prospect of an economic downturn and unsettled policy regarding taxes and regulations has cut into confidence about both the present and the near future.

Among the single-most important problems reported by respondents, the quality of labor was at 19 percent in February for the fourth month in a row. Respondents citing inflation as the most important problem fell to 16 percent in February, the lowest since 16 percent in October 2021.

No recovery in small business sentiment with the index at 101.0 in February, down from 102.8 in January and 105.1 in December. Enthusiasm over expected pro-business policies of the Trump administration has faded a bit.

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.