WASHINGTON, D.C. (October 8, 2019) — The small business Optimism Index maintained a historically solid reading, but took a dip in September, falling 1.3 points to 101.8. September’s figure falls within the top 20% of all readings in the Index’s 46-year history. The survey shows no sign of a recession and indicated continued job creation, capital spending, and inventory investment, all consistent with solid, but slower growth. The Uncertainty Index rose 2 points, revisiting high levels of concern.
“As small business owners continue to invest, expand, and try to hire, they’re doing so with less gusto than they did earlier in the year, thanks to the mixed signals they’re receiving from policymakers and politicians,” said NFIB President and CEO Juanita D. Duggan. “All indications are that owners are eager to do more, but they’re uncertain about what the future holds and can’t find workers to fill the jobs they have open.”
Key findings from September’s index included:
- No Index component advanced, three were unchanged (at good levels), and six declined.
- Reports of rising labor compensation remained historically strong and fewer firms reported raising selling prices, so rising labor costs are still not pushing up inflation on Main Street.
- Twenty-five percent expected credit conditions to remain unchanged or to tighten in spite of two rate cuts by the Federal Reserve. Reported credit market conditions remain among the most supportive in the 46-year survey history.
- The perceived environment for expansion and expected business conditions deteriorated further. Twenty-two percent of owners said it was a good time to expand, down 4 points, while a net 9% expect better business conditions, down 3 points.
The Uncertainty Index has risen 6 points over the past three months, as more owners are unable to make a statement confidently, good or bad, about the future of economic conditions. Tariffs are adversely affecting many small firms, with 30% reporting negative effects in NFIB’s September survey. Owners are more reluctant to make major spending commitments when the future becomes less certain.
“As more owners become unsure, caution will seep into business decisions. In addition to tariff concerns, the Fed’s decision to cut interest rates raised uncertainty,” said NFIB Chief Economist William Dunkelberg. “Perhaps the country will indeed talk itself into a recession, but not anytime soon. The persistence of unfilled job openings and reports of a deficiency of job applicants indicate that there is still substantial economic optimism about the economy on Main Street.”
Fifty-seven percent of owners reported capital outlays, down 2 points from August. Plans to make capital outlays were not energized by the rate reductions. Twenty-seven percent plan capital outlays in the next six months, down 1 point. Plans to invest were strong in manufacturing, 34%, professional services, 33%, and the wholesale trades, 32%.
The net percent of owners reporting inventory increases fell 1 point to a net 0%, indicating that inventory rebuilding which was strong early in the year has slowed to a trickle. The contribution of inventory investment to GDP growth in the third quarter is likely to be minimal as rising uncertainty curbs production. The net percent of owners planning to expand inventory holdings was unchanged at a net 2%, a solid number given weaker real sales expectations. The net percent of owners expecting higher real sales volumes fell 1 point to a net 16% of owners.
Inflationary pressures are fading on Main Street as fewer firms on balance are raising prices. The net percent of owners raising average selling prices fell 3 points to a net 8%, seasonally adjusted, the lowest reading since December 2017. A net 15%, seasonally adjusted, plan price hikes (down 2 points). While 13% reported cutting selling prices, only 1 percent plan to do so. This suggests that most price cutting is an unanticipated, unplanned response to market conditions, a healthy process.
A seasonally-adjusted net 17% plan to create new jobs, down 3 points. Not seasonally adjusted, 18% plan to increase total employment at their firm (up 1 point), and 6% plan reductions (up 3 points). Thirty percent of owners reported few qualified applicants for their open positions (down 3 points) and 20% reported none (down 4 points). Twenty-three percent selected “finding qualified labor” as their top business problem, more than cited taxes or regulations. Reports of higher worker compensation were unchanged at a net 29% of all firms. Plans to raise compensation fell 1 point to a net 18%.
About the Small Business Economic Trends
The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since the 4th quarter of 1973 and monthly surveys since 1986. Survey respondents are drawn from a random sample of NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in September 2019. For more information about NFIB, please visit NFIB.com.