Small business optimism sinks in April – Cloudy economic outlook weighs on sentiment

Summary

Economic expectations decline on tariff plans

The post-election boost in small business confidence is steadily being chipped away. The NFIB Small Business Optimism Index notched its fourth consecutive decline in April, dipping 1.6 points to 95.8. Most index components declined over the month; however, deteriorating economic expectations and a drop in labor demand were the largest drags. Small business job openings sank to one of its lowest points since the pandemic in January 2021, with only 34% of firms reporting unfilled positions on net. A dimmer economic outlook clouded by tariffs also appeared to weigh on sales expectations and capex plans. That said, tariffs have yet to meaningfully impact the NFIB measure of small business pricing. Inflation dropped to the third most pressing problem facing small firms as the share raising prices and planning to raise prices each declined in April.

The outlooks for small businesses dimmed in April

• The Small Business Optimism Index softened 1.6 points in April to 95.8. This marked the fourth straight decline and pushed the index solidly below its 50-year average reading of 98.
• A net 15% of owners expected economic conditions to improve over the next six months, down from 21% in March. This metric has trailed lower each month since surging after the election in December 2024 but is still an improvement over the persistently negative readings that became the norm post-pandemic.
• Small business uncertainty also remained elevated. That said, the uncertainty index dropped slightly in April as some details of the president's tariff policy were revealed.
• A cloudy economic outlook weighed on labor demand in April. The net share of small firms with unfilled job openings sank six points to 34%, tied with last September for the lowest reading since January 2021. Hiring plans also remained muted at 13%.
• Despite reports of lower demand, finding skilled workers remains an issue for small firms. Labor quality ranked as the most important problem facing small businesses.
• Elevated economic uncertainty continued to constrain capex plans. Only 18% of firms on net planned capital expenditures in the near term, the lowest share since the height of the pandemic in April 2020. Plans to expand inventories also fell back in April, likely in part a response to stockpiling efforts in the prior months.
• The net share of small businesses anticipating greater sales volumes re-entered negative territory in April, falling back to -1%, its lowest share since before the election.
• As tax discussions commenced in Washington, taxes rose to the second most pressing concern facing small businesses. The share citing inflation as their top problem declined two points to 14%.
• A net 25% of firms reported raising their prices in April and a net 28% planned to raise their prices over the next three months, each of which was a small step down from the readings in March.
• Compensation pressures appear to be moderating as the labor market eases. The prevalence of compensation hikes declined five points in April as the net share of firms planning to raise compensation fell to its lowest level in four years.
• Credit availability remains tight for small firms but does not appear to be deteriorating at present. The average interest rate on short-term small business loans was unchanged in April at 8.9%. However, only 6% of owners reported paying higher interest rates in April than in prior months, down from 21% a year ago.

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