- The NFIB’s small business optimism index fell 1.3 points to 101.8 in September. The reading came in slightly lower than market expectations, which called for a 102.0 reading.
- Looking beneath the headline, seven of the ten subcomponents fell on the month and three remained unchanged. No index component advanced. Responses in the expectations categories led the way in terms of declines, extending declines registered last month. Firms expecting the economy to improve fell three points to 9%, while those expecting higher real sales fell by one point to 16%. Despite looser monetary policy, firms expecting easing credit conditions also fell by two points. Current inventory and plans to increase inventories remained unchanged relative to the previous month.
- The number of firms reporting that now was a good time to expand also pulled back by four points to 22% and plans for further capital outlays reversed the one point gain it made in August.
- Labor market indicators also deteriorated. Firms planning to increase employment declined (-3 points to 17%) as well as those planning to raise worker compensation (-1 point to 18%). The share of businesses seeing ‘few or no qualified workers’ for their open positions was also down on the month (-7 points to 50%).
Key Implications
- America’s small businesses are concerned. This is captured most notably in the rise in the uncertainty index (up two points to 82%). This index has risen by six points over the last three months as business owners are increasingly unable to make judgements – either good or bad – about future economic conditions. Continued trade battles and tariffs are complicating the investment landscape as owners are increasingly reluctant to make major spending commitments.
- Notwithstanding, the optimism index remains above its historical average. As China and Washington attempt to push negations forward and deescalate the trade battle, business confidence could get a boost.
