NEW YORK, Feb 13 Reuters U.S. small business sentiment fell to its lowest since May 2023 in January, according to a report published Tuesday, as labor costs and slowed sales squeeze bottom lines.

The National Federation of Independent Business monthly sentiment index fell by 2 points, the largest decrease since December 2022, to 89.9 in January from 91.9 in December. The drop follows what had been the index39;s first increase in five months in December, and keeps it below its 50year average of 98 for a 25thstraight month.

Labor quality and inflation were both a top concern for business owners in January. As costs increase, sales conditions have tightened with the share of owners reporting profit growth falling to a net negative 30 from a net negative 25 in December, the report said.

Small business owners continue to make appropriate business adjustments in response to the ongoing economic challenges theyre facing, said the NFIBs chief economist Bill Dunkelberg. In January, optimism among small business owners dropped as inflation remains a key obstacle on Main Street.

Nonetheless, the share of owners citing inflation as their top concern dropped 3 points to 20, the report said. Concerns around rates of interest and tightened credit conditions for small business borrowers have tracked with the Federal Reserves rate hike campaign, launched in 2022 in an effort to curb inflation. The Fed, though, has signaled rate hikes are over and it should be in position to lower…