In the latest survey conducted by the National Federation of Independent Business (NFIB), a notable decline in small business optimism was reported, driven by faltering sales expectations amidst ongoing inflationary pressures. According to the findings released on Tuesday, the small business optimism index saw a decrease of 2.5 points, settling at 91.2 for the month of August.
This figure marks yet another month below the 50-year average of 98, continuing a worrying trend that has now persisted for 32 consecutive months. Analysts had anticipated a more optimistic reading of 93.6, as per a survey compiled by Bloomberg. Inflation emerged as the primary concern for approximately 24% of small business owners, a slight decline of one point compared to July's figures.
Alongside this, the NFIB reported a rise in the uncertainty index, reaching a score of 92, the highest level observed since October 2020. "Historically high inflation remains the top issue for owners as sales expectations plummet and cost pressures increase," remarked NFIB Chief Economist Bill Dunkelberg.
He further emphasized the growing uncertainty among small business owners, indicating that expectations for future business conditions are deteriorating. In terms of other concerns, labor quality was identified as the second most pressing issue by 21% of small business owners in August. Additionally, 9% of respondents highlighted labor costs as a significant concern.
The survey revealed a net negative 16% of owners reporting increased nominal sales over the past three months. Those expecting stronger real sales volumes experienced a decline of nine points, resulting in a net negative of 18%. Furthermore, the proportion of owners increasing average selling prices fell two points on a monthly basis, yielding a net of 20% when seasonally adjusted. In a sign of hesitancy regarding workforce expansion, there is a net 33% of owners who reported increased compensation in August, marking the lowest level since April 2021.
However, the plan to raise compensation in the upcoming three months rose by two percentage points, indicating a cautious approach. Alarmingly, 40% of all owners reported being unable to fill job openings during this period, reflecting a two-point increase from the previous month. Admir Kolaj, an economist at TD Economics, observed that the cooling labor market reflects similar trends in small business sentiment, noting that plans for hiring are losing momentum as the summer season winds down.
He stated, "Easing wage metrics and more subdued price plans lend further credence to the view that inflation is likely to trend lower in the future." Anticipation is building around the U.S. government data set to release on Wednesday, which is expected to indicate a monthly consumer inflation increase of 0.2% and an annual rise of 2.5% as of the last month, according to consensus data compiled by Bloomberg..