Macro Flash Report

Small Business Activity

Takeaway:

The NFIB Small Business Optimism index improved but remains depressed, underscored by an all-time high reading of uncertainty. While the uncertainty component typically surges heading into a presidential election, the “record level” shows the compounded impact of elevated borrowing costs. Capital expenditures will be restrained until there is clarity here.

NFIB Small Business Optimism & Uncertainty Index

In September, the NFIB Small Business Optimism index rose to 91.5, a tick up from 91.2 in August but below the market expected 92.0. This marks the 33rd consecutive month the index has remained below the 50-year average of 98. Additionally, the Uncertainty Index surged by 11 points to 103, the highest level on record.

Other key findings included:

  • Capital Spending: 51% of owners made capital investments in the last six months, down five points from August, indicating a potential cooling in business expansion plans.
  • Inventory Levels: The net percentage of owners reporting inventory gains dropped by four points to -13%, the lowest level since June 2020, suggesting businesses are drawing down inventories amid weaker demand.
  • Loan Costs: The average interest rate on short-term loans rose to 10.1%, the highest since February 2001. A net 12% of owners reported paying higher rates on their most recent loan, the lowest reading since March 2022.
  • Labor Market: 34% of business owners reported job openings they couldn’t fill, the lowest figure since January 2021.
  • Inflation Concerns: Although down one point from August, 23% of owners continued to cite inflation as their top business concern, highlighting its ongoing impact on costs and profitability.