U.S. NFIB small business sentiment drops in September, improvement stalls in past two months

U.S. NFIB small business optimism index dropped in September, coming below market projections. The index fell 0.3 points to 94.1, against the market expectations of a recovery to 95 points. The decline continued to wear away the progress that was made earlier in 2016, bringing the confidence index back to the levels seen in June.

The details of NFIB report were quite disappointing. Out of the ten subcomponents, six dropped in September, with the largest decline registered in plans to raise inventories, which dropped 8 points to -7 percent, and in job openings that saw a decline of 6 points to 24 percent. Moreover, expansion plans also registered a decline of 2 points to -7 percent.

Meanwhile, the rest of the subcomponents rose in September. Expectations regarding improvement in the economy and higher real sales were up 12 and 5 points respectively, giving mixed signals regarding the future, noted TD Economics.

Indicators for labor market continue to be close to post-recession highs; however, their improvement has usually stalled in the past few months. There was an improvement seen in plans to increase employment, which rose 1 percentage point to 10 percent in September. Meanwhile, plans to raise worker compensation stayed the same at 14 percent.

The NFIB small business optimism index report for September was disappointing as it implies that the rebound in small business sentiment that was observed since March has stalled in the last two months.

Keeping the NFIB report aside, a series of positive data were released in September, including the ISMs, payrolls and auto sales. This implies that the U.S. domestic economy continues to be on a strong footing. The drop in SME confidence should be seen as temporary, according to TD Economics. Political uncertain possibly is to be blamed slightly for the reduction in small business sentiment.

“As the dust settles on the election and the realities of a new economic vision are digested by small and medium-sized businesses, this uncertainty should diminish and hopefully give way to improved business confidence”, added TD Economics.