- The NFIB Small Business Optimism Index declined by 1.1 points to 98.7 in August, but held above its 52-year historical average of 98.0. The Uncertainty Index retreated by 2 points to 89, remaining notably elevated above historical norms.
- Six of the ten index subcomponents fell on the month, two improved and two remained unchanged. The net share of owners expecting the economy to improve dropped 5 points to 10%, while earnings trends deteriorated by 3 points to -19%. Plans for capital outlays and expectations for higher real sales both ticked down by 1 point to 24% and 6%, respectively.
- Employment metrics followed a general cooling trend. A net 17% of firms planned to create jobs over the next three months, down three points from July. Meanwhile, the share of firms reporting unfilled job openings edged down by one point to 35%. Hiring trends, however, appeared quite weak, with the share of businesses with an increase in employment over the last three months falling to -7%, and the average change in employment per firm falling to -0.44 in August.
- On wages and pricing, there were few changes. The net share of firms raising worker compensation held steady at 31%, while net share of firms planning compensation increases in the months ahead edged down one point to 18%. The net share of firms raising and planning to raise average selling prices, meanwhile, held steady at respectively 31% and 28%.
- When evaluating primary operational headwinds, labor quality remained the top business problem, cited by 23% of owners. Reports of inflation as the single most important problem increased slightly, rising by two points to 16%.
Key Implications
- The headline optimism measure eased this month, with the pullback largely driven by a less optimistic view on the economy. That said, the decline comes from a relatively elevated level in the month prior, leaving the optimism measure above historical norms. Sifting through the details, what stands out the most is perhaps the divergence between the recent strength in the August payrolls report and the weak hiring trend in today’s small business report. This dichotomy suggests that the recent hiring strength may have been concentrated among larger businesses.
- While concerns surrounding the cost of labor have eased considerably since peaking in May, labor quality remains top of mind. This suggests that sourcing qualified workers continues to be a meaningful constraint on hiring among small businesses and may be contributing to the weak hiring trend. Inflation concerns, meanwhile, moved modestly higher in August, reinforcing the view that cost pressures remain an added obstacle to stronger confidence and expansion plans.
