Recent data from the National Federation of Independent Business reveals that small business optimism in the United States showed a slight improvement in September, though it fell short of expectations amid ongoing inflationary pressures. The NFIB small business optimism index saw a minor uptick of 0.3 points, reaching a total of 91.5.
This figure indicates a continued trend of low confidence, remaining below the long-term average of 98 for the 33rd consecutive month. Analysts had anticipated a higher reading of 92, as indicated by a survey from Bloomberg. The survey highlighted inflation as the primary concern for 23% of small business owners, a decrease of one percentage point compared to the previous month.
Simultaneously, the uncertainty index saw a significant rise, advancing 11 points to reach its peak at 103. NFIB Chief Economist Bill Dunkelberg commented on the implications of this uncertainty, stating, "Uncertainty makes owners hesitant to invest in capital spending and inventory, especially as inflation and financing costs continue to put pressure on their bottom lines." He further noted that despite some optimism surrounding the upcoming holiday sales season, many small business owners are left wondering about the potential for improvement in future business conditions. Labor quality emerged as the most pressing issue for 17% of small business owners in September, while labor costs remained a concern for 9% of respondents, consistent with the prior month’s data.
Additionally, a troubling trend was reported wherein a net negative 17% of owners experienced higher nominal sales over the last three months. However, a slight increase in the number of owners expecting stronger real volumes was observed, climbing nine points to a net negative 9%. Furthermore, the percentage of owners increasing their average selling prices rose two points on a monthly basis, resulting in a net figure of 22%, adjusted seasonally. Compensation trends also warrant attention, as a net 32% of business owners reported increasing compensation levels in September.
This figure represents the lowest point since April 2021, although 23% of owners plan to raise compensation in the upcoming three months, marking a three-point increase from the previous month’s data. Furthermore, 34% of all business owners reported unfilled job openings during this period, indicating a decrease to its lowest level since January 2021, down six points sequentially. On a positive note, labor market metrics from the NFIB survey have generally returned to levels observed before the pandemic, as indicated by TD Economics Economist Andrew Foran.
The recent softening of labor conditions reflects on wage metrics and, consequently, influencing selling prices. The current landscape for small businesses reveals mixed signals as owners navigate inflationary challenges, labor quality issues, and evolving market conditions, all while preparing for the critical holiday sales season ahead..