TD Economics – U.S. NFIB Small Business Optimism Index (September 2024)

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Small Business Optimism Index Improves Modestly in September

The NFIB’s Small Business Optimism Index rose 0.3 points to 91.5 in September, lagging market expectations for a larger increase to 92.0.
Half of the ten subcomponents improved on the month, two were unchanged, and three deteriorated. The improving categories included expectations for higher real sales in six months (up 9 points to -9%) and reports of higher earnings this quarter (up 3 points to -34%). The deteriorating categories included plans for capital expenditures in the next six months (down 5 points to 19%) and plans to add to inventories (down 2 points to -3%).
The net share of businesses planning to increase employment rose 2 points to 15%, retracing the prior month’s decline. The share of firms with unfilled job openings fell 6 points to 34%. Quality of labor concerns declined, with 17% of business owners identifying this as their top business problem, as it continued to come second to inflation concerns which fell slightly to 23% in September.
The net share of firms currently increasing employee compensation fell by 1 point to 32%, while the net share planning to do so over the next three months rose 3 points to 23%. The share of businesses ‘raising’ average selling prices increased by 2 points to 22% while the share of those ‘planning’ to raise average selling prices was unchanged at 25%.

Key Implications

Small business confidence ended the third quarter roughly unchanged from where it started the year. Despite continued strength in the economy, elevated uncertainty has constrained small business sentiment, with the NFIB’s uncertainty index hitting its highest level on record in September. Historically the NFIB’s uncertainty index spikes in the months leading up to an election, with the tight polling margins for this year’s election likely contributing to the outsized uptick.
On a more positive note, labor market metrics in the NFIB survey have broadly returned to their pre-pandemic levels. Hiring intentions have eased below the pre-pandemic pace, consistent with the trend seen in the national hiring rate, while September’s sharp decline in the share of firms with positions they are unable to fill put it soundly back into pre-pandemic territory. The softening labor conditions have filtered through to wage metrics and, by extension, selling prices. On aggregate, these developments should lead to further progress on returning inflation sustainably to the Federal Reserve’s 2% target.

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