U.S. Small-Business Optimism Falls to 97.9 as Uncertainty and Hiring Concerns Persist

U.S. small-business optimism fell in September as owners became more cautious about expansion and reported greater difficulty planning for the months ahead. The National Federation of Independent Business (NFIB) said Tuesday that its Small Business Optimism Index slipped 0.8 point to 97.9, from 98.7 in August, moving just below its 52-year average of 98.0.

The decline was modest, but several underlying measures pointed to a weaker appetite for taking on new commitments. NFIB’s Uncertainty Index increased one point to 90, compared with its historical average of 68. Owners were particularly unsure about expansion decisions and capital spending, while finding qualified workers remained their most frequently cited problem.

In its September survey release, NFIB said three of the optimism index’s 10 components improved, six deteriorated and one was unchanged. The largest drags were less favorable expectations for general business conditions and a sharp drop in the share of owners who considered it a good time to expand. The findings suggest that sentiment has softened without signaling that most small firms have stopped investing or hiring.

Expansion plans weaken even as sales expectations improve

Only 7% of owners, on a seasonally adjusted basis, said September was a good time to expand their businesses. That was down five percentage points from August. A seasonally adjusted net 6% expected general business conditions to improve over the next six months, four points lower than a month earlier. Both measures are forward-looking, making them useful indications of how comfortable owners feel about committing money to future operations.

Businesses also became less willing to spend on equipment and other capital projects. The share planning capital outlays over the next six months fell two points to 22%, while 51% reported making such expenditures during the preceding six months, also down two points. A reduction in spending intentions does not mean investment has stopped; it indicates fewer surveyed owners are prepared to undertake new projects at present.

Owners’ assessment of their existing businesses changed more noticeably than the headline index. Forty-eight percent described their business as being in good health, down nine points, whereas 35% called it fair, up seven points. Another 13% said excellent and 4% said poor. That shift matters because an owner can remain operationally stable but still decide that the outlook is not strong enough to justify expansion.

The report was not uniformly negative. A seasonally adjusted net 9% expected higher real sales volumes in the next quarter, an improvement of three points. The measure of recent nominal sales was still weak, at a net negative 8%, though it improved one point from August. Taken together, the readings suggest owners were less confident about the wider business environment than about the possibility of somewhat better sales at their own firms.

Recruitment slows, but qualified applicants remain scarce

Labor quality or availability was the single most important problem for 26% of small-business owners, up three points from August and well above the historical average of 12%. It held the top position for a third consecutive month. This measure identifies the problem owners ranked first; it should not be confused with the percentage of businesses currently advertising vacancies.

The share reporting openings they could not fill fell three points to a seasonally adjusted 32%, still eight points above its historical average. Openings for skilled workers were reported by 27% of owners, down four points, while 16% had vacancies for unskilled positions, up three points. Those diverging figures underline that employers’ needs differ by type of work even when their overall hiring activity is slowing.

Just 51% of respondents were hiring or trying to hire during September, a five-point decline from August. Among that group, 87% said they encountered few or no qualified applicants. Across all respondents, the equivalent share was 45%. Fewer businesses are recruiting, yet the positions still being advertised remain difficult to fill. That helps explain why hiring can slow without resolving employers’ complaints about worker availability.

Plans for future hiring were steadier than current recruitment. A seasonally adjusted net 17% intended to create new jobs over the next three months, unchanged from August. Meanwhile, a net 28% reported raising compensation, down three points, but a net 20% planned wage increases during the next three months, up two points. Hiring restraint therefore has not eliminated pressure on employers to compete for available workers.

The small-business responses arrived against a subdued national employment backdrop. Bureau of Labor Statistics figures showed total U.S. nonfarm payrolls rose by 29,000 in September. The government estimate covers a much broader set of employers and measures actual employment changes, whereas NFIB asks its participating small-business owners about openings, hiring intentions and operating conditions. The two figures illuminate different parts of the labor market and should not be treated as interchangeable.

Higher costs and borrowing rates add to owners’ caution

Inflation became a more prominent concern even as recruitment problems led the survey. Twenty percent of owners called inflation their single biggest business problem, up four points from August and nearly three times its historical average of 7%. Poor sales and taxes were tied for third at 11% apiece. The share identifying poor sales rose one point, while the share naming taxes declined five points.

A seasonally adjusted net 31% reported raising their average selling prices, unchanged from August and above the historical norm of 14%. The net share expecting to raise prices over the next three months also reached 31%, up three points. These figures represent the balance of businesses increasing rather than reducing prices, not a 31% rate of inflation. They indicate that many small firms still expect to pass some of their higher costs on to customers.

Profit trends offered another sign of strain. The seasonally adjusted net share of owners reporting positive earnings trends slipped one point to negative 20%. Among businesses that reported lower profits, 34% attributed the decline to weaker sales and 24% to rising material costs. Those responses rose six and eight points, respectively, from August. They reflect the different ways pressure can reach the bottom line: customers may buy less, and inputs may become more expensive even if sales hold up.

Financing was another constraint. The average interest rate paid on short-maturity business loans increased 0.7 percentage point to 8.2%, according to NFIB, close to its historical average of 8.3%. A net 8% reported paying a higher rate on their most recent loan, up four points from August. At the same time, just 22% said they borrowed regularly, down three points, showing that lending conditions do not affect all surveyed businesses in the same way.

The uncertainty reading also deserves context. NFIB’s index rose in part because more owners could not decide whether expansion was advisable or how much they might invest. It is not a direct measure of future recession risk. Similarly, the optimism index hovering near its long-term average does not negate the persistent difficulties reported by companies facing skilled-labor shortages or tighter profit margins.

NFIB surveyed a sample of 5,000 of its small-business members in September and received 411 usable responses, an 8.2% response rate. The results describe the views and experiences of participating owners, not a complete census of American small businesses. That distinction is important when reading the survey alongside government employment figures or using its sentiment measures to assess the broader economy.