Small-business owner optimism in September dropped 0.2 from August’s corrected reading of 94.1, landing at 93.9, according to the latest NFIB Small Business Economic Trends survey. The largest contributing factor to the dip was the significant increase in pessimism about future business conditions, somewhat offset by an increase in the number of small-business owners expecting higher sales.

“The change in this month’s Index was little more than ‘statistical noise,’ but the drop in outlook for future economic conditions is evidence that many owners are keeping an eye on Washington,” said NFIB chief economist Bill Dunkelberg.

Twenty-four percent of owners surveyed in September reported cited regulations and red tape as their No. 1 business problem, 18 percent cited taxes and 17 percent cited “poor sales.” Only 2 percent reported that financing was their top business problem. 

A review of the September indicators is as follows: 

Job Creation: Job creation was down in September. NFIB owners reduced employment by an average of 0.1 workers per firm in September after August’s slight gain (0.08 workers added on average) following three months of negative numbers. 
    
Hard to Fill Job Openings: Twenty percent of all owners reported job openings they could not fill in the current period (up 1 point), and 14 percent reported using temporary workers, down 2 points from August.

Sales: The net percent of all owners* reporting higher nominal sales in the past three months compared to the prior three months was unchanged at negative 6 percent. The net percent of owners expecting higher real sales volumes rose 3 points to 8 percent of all owners. This is welcome news as improved sales expectations are needed to trigger hiring and new inventory orders, but this trend is a bit inconsistent with the larger deterioration in expected business conditions.

Earnings and Wages: Earnings trends worsened a bit in September, falling 2 points to negative 23 percent. Three percent of owners reported reduced worker compensation and 20 percent reported raising compensation, yielding a net 17 percent reporting higher worker compensation (up 2 points). A net 13 percent plan to raise compensation in the coming months, up 1 point. With a net 17 percent raising compensation but only a net 1 percent raising selling prices, profits will continue to be under pressure. 

Credit Markets: Credit continues to be a non-issue for small employers, 6 percent of whom say that all their credit needs were not met in September, up 1 point from August. Twenty-eight (28) percent of owners surveyed reported all credit needs met, and 53 percent explicitly said they did not want a loan (64 percent including those who did not answer the question, presumably uninterested in borrowing).  

Capital Outlays: In September, the frequency of reported capital outlays over the past six months rose 2 points to 55 percent. The percent of owners planning capital outlays in the next three to six months rose 1 point to 25 percent. 

Good Time to Expand: In September, only 8 percent characterized the current period as a good time to expand (up 2 points). The net percent of owners expecting better business conditions in six months was a net negative 10 percent, 8 points worse than August’s reading. 

Inventories: The pace of inventory reduction continued in September, with a net negative 7 percent of all owners reporting growth in inventories, 2 points down from August. For all firms, a net 0 percent (unchanged) reported stocks too low, a historically “satisfied” reading. Plans to add to inventories were unchanged from August at a net 2 percent. 

Inflation: Fourteen percent of the NFIB owners surveyed reported reducing their average selling prices in the past three months (down 2 points), and 14 percent reported price increases (down 3 points). The net percent of owners raising average selling prices was 1 percent, down 1 point. As for prospective price increases, 21 percent plan on raising average prices in the next few months (up 1 point), and 2 percent plan reductions (down 1 point). A net 19 percent plan price hikes, up 1 point. 

The September report is based on the responses of 773 randomly sampled small businesses in NFIB’s membership, surveyed throughout the month of September. Download the complete study at http://www.nfib.com/sbetindex. 

*All net percentages seasonally adjusted unless otherwise noted. The net percentage is the percent with a favorable response less the percent of owners with an unfavorable response.