A Weakening Labor Market and Economic Uncertainty Dim Outlooks
Source: Economics Group of Wells Fargo Bank, N.A.Summary
Small Business Inflation Is Receding, But So Is Labor Market HealthSmall business owners appear to be more preoccupied with worsening labor market conditions and dimming sales outlooks than they are looking forward to incoming rate cuts. The NFIB Small Business Optimism Index dropped to 91.2 in August, completely erasing July’s gain and taking some shine out of the prior four-month upswing. As nonfarm payrolls continue to show a moderation in hiring, hiring plans trended lower and the net share of small businesses actually adding headcounts reached its lowest reading in two years. The uncertainty index also continued to climb as firms face an uncertain public policy landscape post-November. On the bright side, inflation’s descent appears intact. The share of small businesses raising selling prices in August reached its lowest level since January 2021.
Optimism Back on the Decline
- The NFIB Small Business Optimism Index slid 2.5 points in August to 91.2. This drop completely erased July’s gain and takes some shine out of the prior four-month upswing.
- The only two subcomponents to improve over the month were capex plans, which remain below pre-pandemic levels, and job openings, which continue to trend lower through the monthly noise.
- Hiring plans in the NFIB survey continue to echo the downtrend in nonfarm payrolls. A net 13% of firms planned to add headcounts in August, down two points from July. Perhaps more instructive, reports of actual hiring slid to its lowest reading in two years as job openings remained on a downward path.
- As we get closer to the elections in November, uncertainty around future public policy also appeared to dent small business confidence. The uncertainty index, which tracks the number of firms answering “don’t know” or “uncertain” to at least six questions, leaped to its highest level since the pandemic era in October 2020. The outlook for business conditions over the next six months fell in kind, partially erasing the leap in July.