NFIB Small Business Optimism Slips in August

The Small Business Optimism Index from the National Federation of Independent Business eased to 91.3 during August from 91.9 in July. The reading remained up from the low of 89.8 last December but was well below the most recent high of 102.5 in June 2021. The Business Uncertainty Index fell to 77 and reversed most of its July increase to 80. It remained up from 71 three months earlier.

The net balance expecting the economy to improve fell to -37% in August from -30% in July, though it is increased from a record low of -61 in June 2022. The net balance expecting higher real sales in six months eased to -14% and reversed its July improvement. The balance reporting that now was a good time to expand the business held steady at 6% for the third straight month, though it was increased from a March low of 2%. It also was the highest level since February. Earnings trends strengthened while expected credit conditions also improved to the highest level in six months.

The labor market readings were similarly mixed in August. The reading for current job openings declined to 40% from 42%. It was the weakest reading since February 2021 and stood below the May 2022 high of 51%. The reading for the percent of firms planning to raise employment held steady at 17% but remained well below the high of 32% in August 2021. The percent of firms reporting few or no qualified applicants for job openings fell to 54% after increasing to 56% in July. It remained well below September 2021 high of 62%. The quality of labor was considered the single most important problem by an increased 24% of firms, up from 21% in February.

The percent of firms planning to add to inventories rose sharply to zero percent last month. That figure was up from -8% in January. An increased percentage of respondents indicated that inventories were too low.

Labor compensation pressures eased. The August reading showed that a net 36% of respondents increased compensation over the last three months, down from 50% in January of 2022 and equaling the least since May 2021. A higher net 26% expect to raise compensation in the next three months. The cost of labor in August was viewed as the largest problem by a greatly lessened 8% of respondents.

Inflation pressures recently moved higher. The net balance of firms increasing their average selling prices in August edged up to 27% from a 25% July low. This figure was down from 53% twelve months earlier. Similarly, the net balance planning to increase selling prices in the next three months rose to 30%, up from a 24% December low. Inflation was viewed as the single most important problem by 23% of respondents, down from a high of 37% in July of last year.

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s SURVEYS database.