U.S. NFIB Small Business Optimism Index (August 2023)

Andrew Foran, Economist | 416-350-8927

Date Published: September 12, 2023

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Small Business Optimism Index Falls in August 

  • NFIB's Small Business Optimism Index fell 0.6 points to 91.3 in August, coming in below market expectations for a decline to 91.5. After three consecutive months of improvement, August pared back some of the recent gains, although the index remains higher than it was during the first half of the year.
  • Half of the ten subcomponents deteriorated on the month, three improved, and two remained unchanged. The improving categories included current earnings gains (up 5 points to -25%),  plans to increase inventory  (up 2 points to 0%), and expectations for credit conditions to ease (up 2 points to -6%). The largest declines were seen in expectations for the economy to improve (down 7 points to -37%) and future capital expenditure plans (down 3 points to 24%).
  • The net share of businesses planning to increase employment remained unchanged at 17%, equal to the year-to-date average. The share of firms with unfilled job openings declined for the third time over the past four months, falling by 2 points to 40%. Quality of labor concerns were roughly unchanged, with 24% of business owners identifying this as their top business problem. Inflation concerns edged up slightly, although they remain second to quality of labor concerns.
  • The share of firms increasing compensation fell by 2 points to 36%, while the share of firms planning to raise compensation over the next 3 months rose by 5 points to 26% – the highest level since December 2022. The share of businesses 'raising' average selling prices rose 2 points to 27% while the share of those 'planning’ to raise average selling prices rose 3 points to 30%. 

Key Implications

  • The gradual improvement in small business confidence over the past few months was checked in August amid uncertainty on the future path of the economy. On aggregate, despite expecting the economy to weaken moving forward and real sales to decline over the next six months, Main Street is planning to increase employment and capital expenditures. In spite of this contradiction, survey responses have grown increasingly optimistic over the past three months as the economy has remained resilient.
  • Aspects of the August NFIB survey related to inflation will be unwelcome news for the Federal Reserve if the trends prove to be durable. While the net share of firms increasing worker compensation continued to fall moderately, the share of firms increasing average selling prices ticked up for the first time in nine months. Furthermore, the share of firms planning to increase compensation and average selling prices over the next three months rose – with each remaining elevated relative to pre-pandemic levels. Tomorrow's Consumer Price Index report will provide more details on inflation dynamics in August, but the potential for price growth to remain stubbornly high will be key risk for the Federal Reserve moving forward.