Small business optimism took a hit in August, reversing gains made the previous month as uncertainty surrounding the upcoming November 5 presidential election intensified and expectations for future sales dimmed. The National Federation of Independent Business (NFIB) reported on Tuesday that its Small Business Optimism Index fell by 2.5 points to 91.2, erasing the improvements seen in July when the index had reached its highest level since February 2022.
NFIB Chief Economist Bill Dunkelberg noted that conditions on Main Street deteriorated in August despite the previous month’s
improvements. He highlighted that inflation, which remains at historically high levels, continues to be the primary concern for business owners. This comes as sales projections decline and cost pressures mount. Dunkelberg also pointed to growing uncertainty among small business proprietors, with expectations for future business conditions becoming increasingly pessimistic.
The economist drew attention to the unease evident in stock market performance and emphasized the proximity of the election, predicting increased volatility across various sectors in the coming months.
Inflation persists as the top issue for small business owners, though the percentage citing it as their primary concern decreased slightly from 25% to 24% in August. Fewer businesses reported raising their average selling prices. The net percentage of owners anticipating higher real sales volumes dropped significantly, falling nine points to a net negative 18%. Reports of positive profit trends hit their lowest point since March 2010, with a net negative 37%, representing a seven-point decline from July.
Labor market challenges continue to plague small businesses. The survey revealed that 40% of owners had job openings they couldn’t fill in August, a two percentage point increase from July. Specifically, 36% of small business owners reported vacancies for skilled workers, up four points, while 15% had openings for unskilled labor, down one point.
The difficulty in finding qualified applicants reached its highest level since September 2023, with 56% of owners – including 90% of those actively hiring – reporting few or no qualified applicants for open positions. This figure rose by seven points from the previous month.
The transportation, construction, and manufacturing sectors faced the most significant challenges in filling open positions. In the construction industry, job openings increased by 5 points from the previous month, with 60% of firms struggling to fill a vacancy. The agriculture and finance sectors reported the lowest number of job openings.
The percentage of small business owners planning to create new jobs decreased by two points to 13% in August. However, the survey did show a slight increase in planned capital investment, with 24% of owners intending to make capital expenditures in the next six months, up one point from July.
The NFIB noted that a more optimistic outlook on the future economy and economic policy would help stimulate long-term investment spending. However, current views among owners regarding the future are not supportive, and financing costs remain very high. The organization emphasized that investment is necessary to address persistent labor supply chain problems in the current economic environment.
As the presidential election approaches and economic uncertainties loom, small businesses find themselves navigating a complex landscape of challenges, from inflationary pressures to labor shortages. The coming months are likely to bring continued volatility as these factors play out against the backdrop of political change and market fluctuations.