Small Business Sales Stabilized in February

The stability in February followed a notable dip in January, when the Fiserv Index also registered 143 after a one-point drop. Severe winter storms at the start of the year were a key factor, triggering the most significant year-over-year decline in consumer foot traffic since mid-2022. This pattern of fewer visits offset by higher spending per visit reflects a broader shift toward more deliberate consumption. Across the economy, consumers are increasingly focused on value, leading them to consolidate purchases and prioritize essentials or small splurges over big-ticket discretionary items. The broader economic environment includes a labor market that is cooling after years of record-low unemployment and inflation that remains moderately above the Federal Reserve's target. In its January meeting, the Fed held interest rates steady, signaling a cautious approach to further cuts. A significant trend shaping spending is the "K-shaped" economy, where consumption is increasingly driven by higher-income households. This group has benefited from gains in the stock market and rising home equity, while lower-income consumers have seen spending stagnate. While poor weather dampened in-store traffic, it also highlighted the resilience of e-commerce, with online retail sales volumes recovering. This points to a more fragmented retail environment where the average consumer now spreads their spending across a greater number of online and physical stores each month compared to a year ago. Despite these mixed conditions, small business owners have maintained a cautiously optimistic outlook for 2026. A survey early in the year found that the vast majority of owners—nearly 88%—reported that their revenues were stable or growing.