U.S. Small Business Morale Improves Again, Labor Quality Top Concern: NFIB

(RTTNews) - Confidence among the U.S. small businesses increased for a second month in a row in August, largely led by stronger sales expectations and easing uncertainty, while labor quality remained the main worry for businesses, results of a monthly survey by the National Federation of Independent Business showed on Tuesday.

The NFIB Small Business Optimism Index rose 0.5 points to 100.8 in August. Economists were looking for a higher score of 101. The latest reading is about 3 points above the 52-year average of 98. Among the main components of the headline index, four increased, four decreased, and two were unchanged.

"Optimism increased slightly in August with more owners reporting stronger sales expectations and improved earnings," NFIB Chief Economist Bill Dunkelberg said. "While owners have cited an improvement in overall business health, labor quality remained the top issue on Main Street."

A net 12 percent of business owners expect higher real sales volume ahead. The ratio was 6 points higher from July and contributed the most to the increase in the headline index.

The uncertainty Index dropped 4 points to 93, thanks to a decrease in uncertainty about financing expectations and planned capital expenditures. The NFIB survey also showed that unfilled job openings declined by a point to 32 percent in August, which was the weakest since July 2020. The difficulty in filling open positions was most severe in the construction industry, where 49 percent of businesses had a job opening, they could not fill. Manufacturing and transportation sectors were also faced with labor shortages, while openings were the lowest in the wholesale and finance industries.

The share of small business owners reporting labor quality as their main concern remained at 21 percent, continuing to rank as the top problem, the industry lobby said.

That said, hiring intentions improved in August with 15 percent of business owners planning to create new jobs in the next three months, up 1 point from July and the third consecutive monthly increase. Though this is a positive trend, it was historically low, the NFIB observed.

The survey also showed that a net 26 percent of small businesses plan to hike prices in the next three months, down two points from July.

Oxford Economics economist Bernard Yaros expects hiring plans to improve as the lagged effects from tighter financial conditions and heightened uncertainty around the time of the "liberation day" tariffs fade. Further, interest-rate relief and new tax cuts are set to spur hiring activity next year, the economist added.

"All told, there was little to dissuade the Fed from proceeding with a resumption of its rate-cutting cycle as laid out in the baseline," Yaros said. "The share of firms grumbling about poor sales ticked down but remains near cyclical highs, which highlights the Fed's inclination to protect against any negative feedback loop between unemployment and business sales from taking hold."

The Federal Reserve is widely expected to lower the federal funds rate this month, which will be the first reduction this year. A 25-basis-point cut is forecast as the labor market cools, while inflation remains strong.