Small business sentiment in the U.S. has seen a significant shift due to rising labor costs and a slowdown in sales. The National Federation of Independent Business (NFIB) reported a drop in the monthly confidence index for small businesses, dropping to 89.9 in January from 91.9 in December 2022. This is the lowest level since May 2023, and the largest drop since December 2022. The index has been below its 50-year average of 98 for 25 consecutive months. Small business owners have adjusted their future expectations, with expectations for improved sales falling to -16%, reflecting the impact of inflation and high labor costs. Inflation remains a concern, with 3.1% in January, while funding challenges are a major issue for 5% of business owners. The Federal Reserve's interest rate hikes and higher debt costs are impacting small businesses, but rising consumer confidence suggests increased spending and potential sales growth.