The NFIB’s Small Business Optimism Index rose 0.5 points to 100.8 in August, coming in right in line with market expectations. As confidence improved, uncertainty pulled back, falling 4 points to a still elevated reading of 93.
Four out of ten subcomponents improved on the month, four decreased, and two remained unchanged. The largest gains were in expectations about higher real sales (up 6 points to 12%), earnings trends (up 3 points to -19%), and current inventory being too low (up 3 points to 0%). The declines among key subcomponents were more muted in comparison.
The net share of businesses planning to increase employment rose 1 point for the third month in a row to 15%, but the share of firms with unfilled job openings continued to trend lower (down 1 point to 32%). Quality of labor concerns remained unchanged at an elevated level, with 21% of business owners identifying this as their top business problem.
The share of firms reporting “few or no qualified workers for job openings” fell 5 points to 43% – aside from the start of the pandemic, this is the lowest level since early 2016.
Inflation metrics were muted. The share of businesses ‘raising’ average selling prices fell 3 points to 21%, while the share of those ‘planning’ to raise average selling prices ahead 2 points to 28% – both measures remain well above their historical averages. Meanwhile, inflation concerns held steady at 11% for the third month in a row – lower than the 20-25% in the 2023-24 period, but still elevated compared to historical norms.
Key Implications
Small business optimism improved modestly in August, extending the turnaround in the confidence measure that began back in April. Among the key developments in today’s report is the fact that, alongside some normalization in inflation-related metrics, businesses have been feeling more upbeat about ‘real sales’ in the months ahead.
Following a period of job cuts at small firms (June to August), the share of businesses planning to increase employment in the months ahead has also trended moderately higher. While ‘quality of labor’ remains the top concern, small businesses appear to have plenty of applicants for their job openings. The not so good news is that these openings continue to trend lower, which speaks to a more moderate pace of job creation ahead. Overall, with the Fed putting more emphasis on labor market concerns recently, this data leans in favor of a rate cut at next week’s FOMC meeting.
