In February, 38 percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, up 3 points from January and the highest reading since August 2024. Thirty-one percent have openings for skilled workers (up 2 points) and 13 percent have openings for unskilled labor (up 3 points). The difficulty in filling open positions is particularly acute in the retail, construction, and manufacturing industries. Openings were the lowest in the agriculture and finance industries. A seasonally adjusted net 15 percent of owners plan to create new jobs in the next three months, down 3 points from January. Overall, 53 percent reported hiring or trying to hire in February, up 1 point from January. Forty-eight percent (89 percent of those hiring or trying to hire) of owners reported few or no qualified applicants for the positions they were trying to fill (up 1 point). Twenty-seven percent of owners reported few qualified applicants for their open positions (up 3 points) and 21 percent reported none (down 2 points). The percent of small business owners reporting labor quality as the single most important problem for business rose 1 point from January to 19 percent, surpassing inflation as the top issue. Labor costs reported as the single most important problem for business owners rose 3 points to 12 percent, only 1 point below the highest reading of 13 percent reached in December 2021. The last time labor costs ranked this high was February 2023.

Fifty-eight percent reported capital outlays in the last six months, unchanged from January. Of those making expenditures, 37 percent reported spending on new equipment (down 4 points), 30 percent acquired vehicles (up 6 points), and 13 percent improved or expanded facilities (down 3 points). Twelve percent spent money on new fixtures and furniture (unchanged), and 5 percent acquired new buildings or land for expansion (unchanged). Nineteen percent (seasonally adjusted) plan capital outlays in the next six months, down 1 point from January. The last time capital outlay plans fell below 19 percent was April 2020.

The net percent of owners raising average selling prices rose 10 points from January to a net 32 percent seasonally adjusted. This is the largest monthly increase since April 2021, and the third highest jump in the survey’s history. Actual prices remain too high to achieve and maintain the Federal Reserve’s 2 percent inflation target, but closing in on a range of more price stability. About half of the CPI is “imputed,” not based on a direct measure of market prices. And even if inflation slows to 2 percent, prices are still rising, adding to the 20 percent increase in prices since 2021. Sixteen percent of owners reported that inflation was their single most important problem in operating their business (higher input and labor costs), down 2 points from January, now just under labor quality as the top problem. The last time it was this low was October 2021. Unadjusted, 6 percent (down 3 points) reported lower average selling prices and 38 percent (up 8 points) reported higher average prices. Price hikes were most frequent in the finance (53 percent higher, 10 percent lower), wholesale (47 percent higher, 0 percent lower), agriculture (45 percent higher, 12 percent lower), and retail (45 percent higher, 5 percent lower) sectors. Seasonally adjusted, a net 29 percent plan price hikes (up 3 points), the highest reading in eleven months. Demand is still too strong to trigger widespread price reductions. Rising labor costs are keeping pressure on price decisions.

A net 2 percent reported their last loan was harder to get than in previous attempts (down 1 point). The last time it was this low was February 2022. Overall, credit markets remain friendly toward small businesses. Three percent reported that financing and interest rates were their top business problem in February (unchanged). A net 4 percent of owners reported paying a higher rate on their most recent loan, up 1 point from January. The average rate paid on short maturity loans was 8.8 percent, down 0.6 (60 basis points) from January. Twenty-four percent of all owners reported borrowing on a regular basis, down 3 points from January and the lowest since May 2022. High mortgage rates have slowed housing activity, a damper on the housing market and on GDP growth.

Seasonally adjusted, a net 33 percent reported raising compensation, unchanged from January. On Main Street, compensation will continue to put pressure on owners to raise prices, a negative for the inflation fight. A seasonally adjusted net 18 percent plan to raise compensation in the next three months, down 2 points from January. Wage hikes are necessary to maintain current employment and hopefully to help fill vacancies. The frequency of reports of positive profit trends was a net negative 24 percent (seasonally adjusted), 1 point worse than January. This matched the performance in September 2023. Among owners reporting lower profits, 40 percent blamed weaker sales, 13 percent cited usual seasonal change, 11 percent cited labor costs, and 9 percent blamed the rise in the cost of materials. For owners reporting higher profits, 52 percent credited sales volumes, 15 percent cited usual seasonal change, and 13 percent cited higher selling prices.

A net negative 12 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down 2 points from January. The last time this reading was this high was June 2024. The net percent of owners expecting higher real sales volumes fell 6 points from January to a net 14 percent (seasonally adjusted). This is the second consecutive month real sales expectations declined after surging from recession levels after the election. The net percent of owners reporting inventory gains was unchanged from January at a net negative 6 percent (seasonally adjusted). Not seasonally adjusted, 8 percent reported increases in stocks (unchanged) and 19 percent reported reductions (down 2 points). Stocks are still being liquidated to meet customer demand. A net negative 5 percent (seasonally adjusted) of owners viewed current inventory stocks as “too low” in February, down 4 points from January. With more owners viewing stocks as excessive than too low, inventory accumulation will be weak. A net negative 1 percent (seasonally adjusted) of owners plan inventory investment in the coming months, down 1 point from January. This is consistent with the balance in the level of satisfaction with current stocks. Optimism about future sales growth, even though moderated over the last two months, will encourage inventory investment.

Uncertainty is high and rising on Main Street, and for many reasons. Economic policies are raising concerns among firms that depend on imports or export, as tariffs are being broadly applied and retaliated against, changing the prices of imports and exports. The federal government is shedding workers and trimming expenditures. Many small firms are supported by assisting firms with government contracts. How these developments are resolved will shape the economy’s future.

Confidence that the economy will continue to grow is fading, even with a new management team in place. The net percent of owners expecting better business conditions in the next six months lost 10 percentage points and the percent viewing the current period as a good time to expand fell 5 points to 12 percent (but stayed well above the 6 percent reading last October). Capital spending plans fell 8 points from December, and hiring plans dropped 4 points. All consistent with the general tone of the financial press, the economy is still growing, but at a slower and slower rate, storm clouds are forming.

Inflation remains a major problem, ranked second behind the top problem, labor quality. Owners want to see prices fall after the 20 percent rise over the last four years. President Trump’s plan to lower energy prices could help, but history says it takes a slowdown (recession) to significantly reduce the price level and that’s not an ideal solution. The percent of owners raising and planning to raise prices (and wages) are too high to reach that 2 percent inflation rate for goods and services whose prices are market determined (not imputed like rent, etc.). More firms report lower employment than higher and the average employment change is negative. While we wait and watch, a lot of churning is likely to occur. Hold on to your seats!