Small business optimism dropped across all major industry sectors in April, with retail businesses showing the steepest decline, according to the latest industry-specific Small Business Economic Trends survey released by the National Federation of Independent Business (NFIB) Research Center on Tuesday.
The quarterly report focuses on four major sectors: construction, manufacturing, retail, and services. All four sectors reported a decrease in optimism compared to the previous quarter, although three out of the four — construction, manufacturing, and services — maintained optimism levels above the long-term average Optimism Index of 98, recorded over the last 51 years.
“Small business optimism declined in all four industry sectors, but most notably among small retailers and manufacturers largely due to more pessimistic views about future business conditions, supply chain disruptions, and ongoing labor quality concerns,” said Holly Wade, Executive Director of NFIB’s Research Center. “Despite the declines in Optimism as owners navigate the evolving business climate, at least 60 percent of small firms across all industries consider their business in excellent or good health.”
The overall Small Business Optimism Index for April was 95.8.
Construction Leads in Optimism and Hiring Intentions
With an index reading of 100.9 in April, construction firms were the most optimistic, despite a 3.9-point decline from January. That figure was 5.1 points higher than the index for all firms. The sector also reported the highest percentage of unfilled job openings, at 55% (seasonally adjusted), which is 21 points higher than the overall average.
Fifty-six percent of construction firms cited few or no qualified applicants for job openings, a five-point increase from January, and nearly one-third named labor quality as their most significant issue. A seasonally adjusted net 20% of businesses in the sector plan to hire in the next three months, down 12 points from January, but still seven points higher than the reading for all firms.
Manufacturing Optimism Slips Sharply but Sales Outlook Still Positive
The manufacturing sector posted the sharpest decline in optimism, falling 6.8 points to an index reading of 98.6. Nonetheless, this score remains above the overall business average and the 51-year benchmark. Notably, earnings trends improved by 21 points, reaching a seasonally adjusted net negative 10%, the best earnings reading across all sectors.
However, expectations for economic improvement among manufacturers dropped dramatically. A seasonally adjusted net 15% said they expect the economy to improve, a 42-point decline from January and the steepest drop reported. Additionally, 9% of manufacturing firms expect real sales to increase — a figure ten points higher than the reading for all firms.
Retail Sector Lags in Optimism and Hiring
The retail industry posted the lowest level of optimism, with its index falling 6.4 points from January to 93.7. It was the only industry where optimism was lower than the overall business community. Retailers also reported the lowest hiring intentions, with a net 10% (seasonally adjusted) planning to hire, three points below the overall average.
Inventory challenges persisted in the sector. A net negative 14% of retailers said inventory levels were too low, the lowest figure among the four sectors. Plans to increase inventory dropped seven points to a net negative 4%. Retailers also showed weakening sales expectations, with a net 7% (seasonally adjusted) expecting strong future sales — down 11 points from January.
Services Sector Shows Mixed Trends
The services industry recorded an Optimism Index of 98.6 in April, down 4.5 points from January. The decline stemmed primarily from weaker views on general business conditions. However, 23% of service-sector small business owners said they expect the economy to improve — the highest among the four industries, despite being 25 points lower than January.
Hiring intentions in the services industry rose by two points to a net 17% (seasonally adjusted), exceeding the overall reading for all firms. Still, capital expenditure plans were the lowest in this group, with only a net 15% (seasonally adjusted) planning future investments, compared to 18% across all businesses.
The NFIB’s industry-specific quarterly survey offers a closer look at how small businesses in different sectors are responding to current economic challenges, including labor shortages, supply chain disruptions, and economic uncertainty.
This article, “NFIB Report Shows Decline in Small Business Optimism Across Key Industries” was first published on Small Business Trends
Source: Small Business Trends
