NFIB’s Small Business Optimism Index fell 0.5 points to 90.8 in September, coming broadly in line with market expectations for a moderate decline. September’s reading marks the 21st consecutive month below the historical average of 98.
Four of the ten subcomponents pulled back the month, five improved and one remained unchanged. Sizable declines were recorded in two indicators: expectations about an improvement in the economy (down 6 points to -43%) and expected credit conditions (down 4 points to -10%).
The labor market data was somewhat more upbeat. The net share of businesses planning to increase employment rose one point to 18%, while the share of firms with unfilled job openings rose 3 points to 43%, reversing the decline in the month prior. Quality of labor concerns fell back one point, with 23% of business owners identifying this as their top business problem. Inflation concerns held flat, also at 23%.
The share of firms increasing compensation held steady at 36%, while 23% of firms indicated that they planned to increase compensation, only partially reversing the 5 point gain in the month prior. The share of businesses ‘raising’ average selling prices held flat at 30% (up seven points from the cyclical trough in April), while the share of firms ‘planning’ to raise average selling prices rose two points for the second month in a row to 29%.
Key Implications
After some improvement in early summer, small business confidence appears to be souring again, with the mild decline in September marking the second consecutive pullback in the headline confidence measure. Despite this, labor market indicators continue to flash green, with job openings and plans to increase employment both ticking higher in September, and quality of labor concerns remaining top of mind. This echoes the theme of continued resilience in the U.S. labor market observed in the latest payrolls report.
Businesses continue to boost compensation to attract workers. While the share of firms increasing and planning to increase worker compensation has come off their pandemic peaks, both measures remain elevated near their pre-pandemic levels. Meanwhile, the share of firms raising and planning to raise average selling prices are still above pre-pandemic highs, and have come off their cyclical troughs recently. These elements highlight the upside threat to inflation, with the Fed expected to keep its foot on the monetary policy brakes, and perhaps press them a bit harder over the near-term.
