NFIB’s Small Business Optimism Index fell 2.5 points to 91.2 in August, coming in below market expectations calling for a flat print.
Eight of the ten subcomponents fell on the month, while only two improved. Large declines were recorded in expectations regarding higher real sales (-9 points to -18%), earnings trends (-7 points to -37%) and expectations about an improvement in the economy (-6 points to -13%). Plans to increase inventories also pulled back 3 points to -1%.
Labor market indicators were mixed. The share of businesses planning to increase employment fell 2 points to 13% in August. On the other hand, the share of firms with unfilled job openings rose 2 points to 40%. Quality of labor concerns trended higher, with 21% of business owners (up 2 points on the month) identifying this as their top business problem. Inflation concerns continued to top the list, with 24% of owners identifying this as their top business problem (down 1 point from July).
The share of firms increasing employee compensation held steady at 33%, while the share firms planning to do so in the months ahead rebounded by 2 points to 20%. Both of these measures are at or near their respective post-pandemic lows. Moving over to pricing metrics, the share of businesses ‘raising’ average selling prices fell 2 points to 20%, while the share of those ‘planning’ to raise average selling prices ahead ticked up 1 point to 25%.
Key Implications
Small business confidence retreated in August, fully erasing the improvement made in the month prior. The decline reflected a worsening in earning trends, along with a deterioration in expectations for future sales and business conditions. With the election at our doorstep, uncertainly among small business owners has been rising, with the corresponding subindex increasing further in August to a level that’s now rivalling the highs experienced during the onset of the pandemic and those just prior to the 2016 election.
The U.S. labor market is cooling and small business data is partially playing the same tune, with plans to increase employment losing some steam at the end of summer. At the same time, small business job openings have held up recently and labor quality concerns remain elevated. But, despite the latter, businesses are not splurging on wage increases to the same degree that they were earlier in the pandemic. Easing wage metrics, together with more muted price plans add further credence to the view that inflation should continue to trend lower ahead.
