U.S. Small Businesses Slightly Less Pessimistic in August

The NFIB Small Business Optimism Index edged up to 91.8 in August from 89.9 in July, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. This was the second consecutive monthly increase although the index remained below its 48-year average of 98.0 for the eighth consecutive month. Moreover, this was the fourth lowest reading since February 2014. Seven of the index's ten components rose in August while one was unchanged and two decreased. The NFIB Uncertainty Index increased to 74 in August, the highest reading since last September, from 67 in July.

Inflation remained the major concern of small businesses but less so than in July. Twenty-nine percent of small business owners reported that inflation was their single most important problem in operating their business, an 8%-point decline from the 37% in July, which was the highest reading since the fourth quarter of 1979. Pricing by firms continued to cool in August but remained quite elevated by historical standards. The percentage raising selling prices fell to 53% in August from 56% in July and 63% in June. This was the fourth monthly decline in the past five months. And the percentage expecting to raise selling prices in the next three months declined 5%-points to 32%, its lowest reading since January 2021, from 37% in July and 49% in June.

After having fallen to a series low of a net -61% in June, the net balance of respondents expecting the economy to improve over the next six months rose markedly again in August—to -42% from -52% in July. However, the August reading was still the sixth lowest in the series history dating back to 1973. Plans to make capital outlays rebounded in August, rising to a net 25% from a net 22% in July. Expected real retail sales remained depressed but rose 10%-points to a net -19% in August from a net -29% in July. By contrast, the net percentage expecting profits to rise fell further in August to -33% from -26% in July, the lowest reading since June 2020.

Labor-market conditions remained relatively tight in August, both compared with July and also by historical standards. Small businesses are still having difficulty finding qualified employees to meet their demand and managing supply chain disruptions. The net balance with job openings not able to be filled was unchanged at 49% in August, just slightly below the series high of 51% reached in May. The percentage of firms indicating few or no qualified job applicants was also unchanged at 57% in July, but again this is only 5%-points below the series high of 62% reached in September 2021. A net 21% of firms plan to increase employment in August, up slightly from 20% in July.

Pressure on wages was mixed in August. A net 46% of firms were raising worker compensation in August, down from 48% in July. The series high is 50% reached in January. However, a net 26% expected to raise wages in the next three months, up from 25 in July.

Roughly 24 million small businesses exist in the U.S. and they create 80% of all new jobs. The typical NFIB member employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver's SURVEYS database.