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.

“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,” said NFIB Chief Economist William Dunkelberg. “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.”

The financial markets saw substantial change in March, with the stock market indices losing 22% of their value and jobless claims rising to a record 10 million in the last two weeks of the month. 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.

The main takeaways from the March survey include:
- The NFIB Uncertainty Index rose 12 points in March to 92, the highest level since March 2017.
- Reports of better business conditions in the next six months declined 17 points to a net 5%, which is the largest monthly decline since November 2012.
- 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%.

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.

Down two points from February, 60% of owners reported capital outlays. Of those making expenditures, 43% reported spending on new equipment, 26% acquired vehicles, 16% improved or expanded facilities, 6% acquired new buildings or land for expansion, and 12% spend money for new fixtures and furniture. Twenty-one percent of owners 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.

Sales held strong in March, with a seasonally adjusted net 8% of all owners reporting higher nominal sales in the past three months. As actual sales volumes remained strong, expectations of the future of sales growth deteriorated significantly. 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.

The frequency of reports of positive profit trends fell two points to a net negative 6% reporting quarter-on-quarter profits. Among the owners reporting weaker profits, 32% blamed weaker sales, 26% blamed usual seasonal change, 9% cited price changes, 7% cited labor costs, and 7% cited material costs. For those reporting higher profits, 53% credited sales volumes and 22% credited usual seasonal change.

NFIB released surveys in March on how COVID-19 is impacting small businesses. The latest survey showed 92% of small employers are negatively impacted by the outbreak and about half of small employers said they can survive for no more than two months under the current business conditions.

LABOR MARKETS
As the COVID-19 outbreak started to escalate, the small business labor market generally held steady in March with strong hiring, elevated levels of open positions, and historically high employee compensation. However, hiring plans had a significant drop from February –a signal of a strong downturn in future months. With that in mind, finding qualified workers remains the top issue for 24 percent reporting this as their number one problem, 3 points below August’s record high. Thirty-five percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, down 3 points. A seasonally-adjusted net 9 percent plan to create new jobs, down 12 points. Not seasonally adjusted, 23 percent plan to increase total employment at their firm (down 5 points), and 6 percent plan reductions (up 5 points). Thirty percent have openings for skilled workers (down 3 points) and 13 percent have openings for unskilled labor (up 2 points). Twenty-seven percent of owners reported few qualified applicants for their open positions (down 7 points) and 20 percent reported none (up 2 points).

CAPITAL SPENDING
Sixty percent reported capital outlays, down 2 points from February’s reading. Of those making expenditures, 43 percent reported spending on new equipment (unchanged), 26 percent acquired vehicles (unchanged), and 16 percent improved or expanded facilities (down 2 points). Six percent acquired new buildings or land for expansion (down 1 point), and 12 percent spent money for new fixtures and furniture (down 1 point). Twenty-one percent plan capital outlays in the next few months, down 5 points from February. Small business owners are scaling back spending plans as economic conditions started to deteriorate quickly across the country.

SALES AND INVENTORIES
A net 8 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, up 3 points from February. The net percent of owners expecting higher real sales volumes fell 31 points to a net negative 12 percent of owners. Actual sales volumes were strong in March, but owners have low expectations of future sales growth.

The net percent of owners reporting inventory increases fell 6 points to a net zero percent. Owners started to scale back inventory stocks in response to a strong shift in demand by virus fears. The net percent of owners viewing current inventory stocks as “too low” increased to negative 2 percent, a 2 pointincrease from February. The net percent of owners planning to expand inventory holdings decreased from February by 5 points to a net negative 3 percent. Small business owners are bracing themselves for a significant reduction consumer spending and future orders.

COMPENSATION AND EARNINGS
Seasonally adjusted, a net 31 percent reported raising compensation (down 5 points) and a net 16 percent plan to do so in the coming months, down 3 points from February. Seven percent cited labor costs as their top problem. Twenty-four percent of the owners selected “finding qualified labor” as their top business problem, far more than cited either taxes or regulations. This is likely to fall as more small business owners will find “poor sales” as the dominate issue going forward. The frequency of reports of positive profit trends fell 2 points to a net negative 6 percent reporting quarter on quarter profit improvements. Among owners reporting weaker profits, 32 percent blamed weak sales, 26 percent blamed usual seasonal change, 9 percent cited price changes, 7 percent cited labor costs, and 7 percent cited materials costs. For owners reporting higher profits, 53 percent credited sales volumes and 22 percent credited usual seasonal change.

CREDIT MARKETS
Three percent of owners reported that all their borrowing needs were not satisfied, up 1 point. Twenty-nine percent reported all credit needs met (down 3 points) and 55 percent said they were not interested in a loan (unchanged). A net 4 percent reported their last loan was harder to get than in previous attempts, up 3 points. All this will change dramatically as the government enters the loan market to provide liquidity to small firms. The net percent of owners reporting paying a higher rate on their most recent loan was 5 percent, up 8 points. Twenty-six percent of all owners reported borrowing on a regular basis (down 2 points). The average rate paid on short maturity loans rose 40 basis points to 5.8 percent.

INFLATION
The net percent of owners raising average selling prices fell 5 points to a net 6 percent, seasonally adjusted. Unadjusted, 13 percent (up 3 points) reported lower average selling prices and 21 percent (unchanged) reported higher average prices. Price hikes were most frequent in retail (26 percent higher, 6 percent lower) and wholesale (30 percent higher, 0 percent lower). Seasonally adjusted, a net 12 percent plan price hikes (down 8 points).

COMMENTARY
The COVID-19 outbreak and regulatory responses to curtail its spread shook the small business sector in March. Small business owners’ outlook is bleak as they wrestle to adjust quickly to rapidly changing economic conditions. Many owners have had to close their doors and others are scaling back operations dramatically.

On the policy front, March started off with the Federal Reserve cutting interest rates on March 3rd, then again on March 15th, lowering the federal funds rate to effectively zero. Congress passed and the President signed three major pieces of legislation into law allocating resources to the medical community, displaced workers, and businesses. Also included were paid leave mandates that only apply to small businesses, large businesses are exempt. And all but nine states implemented various “stay-at-home”, “stand-in-place,” and/or “essential only business,” orders to control the COVID-19 outbreak. The policy response has been immense, as regulators and lawmakers are trying to support critical financial institutions, displaced workers, distressed industries, small businesses, and those still employed.

Jobless claim numbers continue to shatter previous record with almost 10 million new claims over the last two weeks. Congress and the Administration have provided several financial support measures to help small businesses retain employeesbut these programs are facing significant challenges operationally. Small businesses are finding it difficult to submit applications for the new Paycheck Protection Program loan or receive timely financing through the SBA’s Economic Disaster Loan program. The severity and duration of the COVID-19 outbreak and the mobility regulations imposed will determine owners’ ability to remain operational going forward.

NFIB released the results of three COVID-19 related surveys evaluating the outbreaks impact on small businesses throughout the month of March. The vast majority ofsmall businesses are now impacted by the COVID-19 outbreak, and owners are taking the threat to their business seriously. Many owners have already sought out financial help and more are planning to do so in the near future. The outbreak has left few, if any, owners unscathed. The economic impact is immense, and now, the questions are how long will it last and how quickly can the small business sector recover once on the other side.