The engine of U.S. job growth receives a blow.


 The NFIB Small Business Optimism Index fell 8.1 points in March to 96.4, the largest monthly decline in the survey’s history. Nine of the 10 Index components declined, which is evidence that economic disruptions are escalating on Main Street as small businesses struggle to keep their doors open. The small business sector is anticipating and bracing for continued economic disruptions going forward. The full report (PDF) can be seen here. Here is an overview.

  • The NFIB Uncertainty Index rose 12 points in March to 92, the highest level since March 2017
  • The NFIB Small Business Optimism Index fell 8.1 points in March to 96.4. That’s the largest monthly decline in the survey’s history. It also ended a historic run of 39-months of business optimism above 100.
  • Predictions of better business conditions in the next six months declined 17 points
  • Real sales expectations in the next six months declined 31 points to a net negative 12%, the largest monthly decline in the survey’s history.
  • Thirteen percent of firms thought it was a good time to expand, a decline of 13 points from last month
  • Job openings fell three points to 35%

“Small businesses are living through the coronavirus pandemic right now and it’s hard to say what the severity of the disruption will be, but we do know they’re feeling the urgency. It is vital that these businesses have access to federal funds that are made available through the CARES Act to keep the doors open on Main Street.”

NFIB Chief Economist William Dunkelberg


A tale of two Marches

It could have been worse. The NFIB survey collected the majority of responses in the first half of the month, so the sharp decline in employment is not reflected in the March survey data.

To provide some insight into how business owners responded to the economic and political turmoil, the 627 responses were grouped into those responses collected by via U.S. mail by March 16 (answering the questionnaire in the first half of the month) and those responding after mid-month.

As reported in NFIB’s monthly jobs report, prior to the Covid-19 outbreak, the small business labor market reported strong hiring, elevated levels of open positions, and historically high employee compensation.

However, hiring plans experienced a significant drop from February yet finding qualified workers remains the top issue for 24% of small employers who reported this as their No. 1 problem.

60% | Percentage of business owners reporting capital outlays
21% | Percentage of owners who are planning capital outlays in the next few months, a sign that small business owners are scaling back spending as economic conditions started to disrupt the nation.
43% | Of those making expenditures, 43% reported spending on new equipment
26% | Of those making expenditures, 26% acquired vehicles
16% | Of those making expenditures, 16% improved or expanded facilities 12% | Of those making expenditures, 12% spent acquireed fixtures and furniture.
6% | Of those making expenditures, 6% acquired new buildings or land for expansion

The shift in job creation plans followed suit dropping 8 points from the first half to the second half.


What This says About the Future

The most dramatic change was the decline in the net percent of owners expecting higher real sales. Small business owners quickly understood the rapid decline in future sales prospects as the economy started to shut down for many industries.

This will necessitate far fewer employees especially with forced closings of many labor intensive, nonessential businesses, including restaurants and retail. Job openings fell 10 percentage points from 40% in the first half of the month to 30% in the second half.

As actual sales volumes remained strong, expectations of the future of sales growth deteriorated significantly, according to Dunkelberg. “It is clear owners felt the pending economic shift as state officials began to shut down non-essential businesses and issue stay-at-home orders in response to coronavirus.”

  • A net negative three percent of owners are planning to expand inventory holdings.
  • Small business owners are bracing themselves for a significant reduction in consumer spending and future orders.

Impact and reaction from the Payroll Protection Program and other small business focused economic incentives enacted by Congress and the President will not show up in the index until the end of April.


About Small Business Economic Trends

The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since the 4th quarter of 1973 and monthly surveys since 1986. Survey respondents are drawn from a random sample of NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in February 2020.


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