Small business confidence dipped in August amid rising election uncertainty

Small business confidence fell in August and reversed the prior month's gains amid growing uncertainty ahead of the Nov. 5 presidential election and expectations that sales will be sluggish.

The National Federation of Independent Business (NFIB) said Tuesday that its Small Business Optimism Index dropped 2.5 points to 91.2 last month. That comes after it had surged in July to the highest reading since February 2022, though the August decline erased all of July's gain.

"The mood on Main Street worsened in August, despite last month's gains," said NFIB Chief Economist Bill Dunkelberg. "Historically high inflation remains the top issue for owners as sales expectations plummet and cost pressures increase. Uncertainty among small business owners continues to rise as expectations for future business conditions worsen."

"The stock market is expressing some unease… and the election is just weeks away," he added. "Expect more volatility in everything in the coming months."

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Inflation continues to be the top source of concern for small business owners, though the share ticked down by one point to 24% in August and fewer reported raising their average selling prices. 

The net percentage of owners expecting higher real sales volumes fell by nine points to a net negative 18%. Reports of positive profit trends were a net negative 37%, a decline of seven points from July and the lowest level since March 2010.

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Labor market issues are persisting for small business owners, with 40% of owners reporting job openings they couldn't fill in August — up two percentage points from July. The survey found that 36% of small business owners have openings for skilled workers, an increase of 4 points, while 15% have openings for unskilled labor, a 1 point decline.

Of the small business owners surveyed, 56% of owners — including 90% of those hiring or trying to hire — reported finding few or no qualified applicants to fill open positions. That figure was up seven points and amounts to the highest level since September 2023.

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The NFIB survey found that the difficulty in filling open positions was the most challenging in the transportation, construction and manufacturing sectors. In construction, job openings were up 5 points from the prior months and over half of firms, 60%, have a job opening they're struggling to fill. Job openings were the lowest in the agriculture and finance sectors.

The percentage of small business owners who plan to create new jobs was 13% in August, down two points from the prior month.

NFIB also found that the share of small business owners planning capital investment increased, with 24% planning capital spending in the next six months, up a point from July.

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"A more positive view of the future economy and economic policy would help stimulate longer term investment spending, but currently owners' views about the future are not supportive and financing costs are very high," NFIB wrote. "Investment is needed to address labor supply chain problems which still persist in the current environment."

Reuters contributed to this report.