The National Federation of Independent Business (NFIB) has reported a significant decline in small business optimism for August 2024. The NFIB Small Business Optimism Index dropped by 2.5 points to 91.2, erasing the gains made in July. This marks the 32nd consecutive month that the index has remained below its 50-year average of 98.
Concurrently, the Uncertainty Index climbed to 92, reaching its highest level since October 2020. Inflation continues to be the primary concern for small business owners, with 24% citing it as their top operational issue, a slight decrease from July.
NFIB Chief Economist Bill Dunkelberg commented on the situation, stating, “The atmosphere on Main Street deteriorated in August, despite the previous month’s improvements. Persistently high inflation remains the foremost issue for owners, as sales expectations plummet and cost pressures intensify. Small business owners are experiencing increased uncertainty as their outlook for future business conditions worsens.”
John Reynolds, NFIB State Director for Minnesota, expressed concern over the index’s decline, emphasizing its implications for small businesses in Minnesota and nationwide. He highlighted the ongoing challenges faced by Main Street, including the lasting effects of inflation, workforce shortages, and diminishing profit margins. Reynolds pointed out that small businesses are reporting the worst profit trends in 14 years, a situation he believes should raise alarms in both state and federal governments.
The survey revealed several key findings. The frequency of positive profit trend reports hit a net negative 37%, a seven-point decrease from July and the lowest since March 2010. Sales volume expectations saw a significant drop, with a net negative 18% of owners anticipating higher real sales volumes, a nine-point decline from the previous month.
Labor market challenges persist, with 40% of small business owners reporting unfilled job openings, a two-point increase from July. Among those actively hiring, 90% reported difficulty finding qualified applicants for their open positions.
Capital expenditures showed a slight increase, with 56% of owners reporting outlays in the last six months, up two points from July. Looking ahead, 24% plan capital outlays in the next six months, a one-point increase from the previous month.
Inventory levels remain a concern, with a net negative 9% of owners reporting inventory gains. Additionally, a net negative 5% viewed current inventory stocks as “too low,” and plans for inventory investment in the coming months decreased.
Pricing strategies are in flux, with the net percentage of owners raising average selling prices falling two points to 20%. However, certain sectors, including finance, retail, construction, and manufacturing, reported higher instances of price increases.
Compensation trends showed some stability, with a net 33% of businesses reporting raised compensation, unchanged from July. Looking forward, 20% plan to increase compensation in the next three months, a slight uptick from the previous month.
The labor market continues to present challenges, with 21% of owners citing labor quality as their top business problem, second only to inflation. Financing remains a relatively minor concern, with only 4% of owners reporting it as their primary business issue.
This data, collected by the NFIB Research Center, is based on monthly surveys conducted since 1986, with the most recent survey completed in August 2024. The findings underscore the ongoing challenges faced by small businesses in the current economic climate, particularly in areas of inflation, labor, and sales expectations.