Small-Business Optimism Comes Crashing Down

In July, it seemed small-business owners had finally begun to see some brighter horizons. But that was short-lived.  

The Small Business Optimism Index from the National Federation of Independent Business fell to 91.2 in August after reaching 93.7 in July, which had been the highest reading since February 2022. And while expectations about future business conditions are still much more positive than they had been earlier this year, and even last year, they worsened by six points in this report, tempering some of the July report’s good news.  

Meanwhile, “uncertainty among small business owners continues to rise,” said Bill Dunkelberg, NFIB chief economist, in a press release. Indeed, the Uncertainty Index — which takes the sum of “don’t know” and “uncertain” responses on six questions — reached the highest level since October 2020, marking a 10-point increase since June.  

Why the about-face in optimism? The top contributor — even more than the negative business outlook — was sales expectations, which fell nine points from last month to a net negative 18 percent.  

Business owners are already feeling the sales pain, too. The “frequency of reports of positive profit trends” reached the lowest point since March 2010, according to the report, and dropped seven points from July to a net negative 37 percent. Thirty-one percent of those owners facing lower profits pointed to “weaker sales” as the reason.

Other owners, meanwhile, blamed rising material costs — perhaps unsurprisingly, considering that inflation was still the top problem for business owners in August.  

And yet, inflation has been cooling, and business owners aren’t hiking pay like they used to, according to this report. A net 33 percent reported raising compensation in the last three months in August, which was “unchanged from July” and still “the lowest reading since April 2021.”  

There’s also been some signs of relief in hiring. While the percentage of owners with positions they weren’t able to fill did tick up two points in August — from 38 to 40 percent — it’s clear that the problem has eased compared to prior years (that measure climbed as high as 51 percent in both 2021 and 2022).   

And yet, the report’s summary points to the upcoming U.S. election, a woobly stock market, and other potential threats that could lead to even more uncertainty, warning that we can “expect more volatility in everything in the coming months.”