U.S. small business optimism eases in August, NFIB index falls to 103.1

The U.S. small business optimism eased in August. The NFIB’s small business optimism index dropped 1.6 points to 103.1. The reading came in a slightly below market expectations, which called for a smaller pullback to 103.5. In spite easing since mid-2018, the small business optimism index continues to be well above the historical average.

Looking beneath the headline print, six of the 10 subcomponents dropped on the month, three rose and one stayed the same. The expectations subcomponents led the way in terms of falls, reversing, the lofty gains seen in the month prior. Expectations for the economy to rebound dropped 8 points to 12 percent, while expectations for higher real sales dropped 5 points to 17 percent. Current inventory and plans to increase inventories also eased on the month.

Earning trends plans to make capital outlays and expectations for credit conditions to ease, all improving on the month. Labor market indicators came in mixed. The share of businesses seeing ‘few or no qualified workers’ for their open positions rose one point to 57 percent, while quality of labor concerns remained top of mind, with both subcomponents setting new record highs in August.

Job openings and hiring plans dropped, but remain elevated relative to historical norms. The share of companies raising worker compensation retreated on the month, but the share of those ‘planning’ to raise compensation improved. Consumer sentiment has been running in a serpentine fashion over the last few months, with trade developments a key factor behind pattern.

Today’s report also emphasizes the fact that a lack of qualified workers continues to be the primary concern among small business, as indicated by the fact that the share of businesses seeing ‘few or no qualified workers’ for their open positions reached a new record high in August, said TD Economics in a research report.