Small business owner confidence softened last month, according to a new report from the National Federation of Independent Business. Specifically, the headline optimism index ended September at 101.8, a larger decline than anticipated and the lowest reading since March. Owner sentiment, though, is still at a historically strong level that “shows no sign of a recession and indicates continued job creation, capital spending, and inventory investment, all consistent with solid, but slower growth,” according to the report. The latest pullback in confidence is also likely less about actual weakness in the broad economy and more about the ongoing trade war that has dampened expectations for future business conditions. Moreover, roughly one in three small business owners surveyed in September said that their firm has been adversely affected by tariffs.
However, most smaller companies derive the bulk of their revenue from the domestic economy. This has helped shelter such firms from the trade dispute and explains why overall small business owner confidence has held up much better lately when compared to the surveys of CEOs at large multinational corporations. Similarly, the NFIB optimism index has not deteriorated nearly as much recently as the ISM manufacturing index, which has predicted a dozen of the past ZERO recessions. Of course a prolonged, retaliatory trade war could eventually become a more pronounced drag on economic activity, with negative spillovers reaching even smaller, domestic-focused businesses. Continued mixed signals from the Federal Reserve about monetary policy are also not constructive, and the NFIB’s uncertainty index rose in September to a very high level. NFIB president Juanita D. Duggan added that “As small business owners continue to invest, expand, and try to hire, they’re doing so with less gusto than they did earlier in the year, thanks to the mixed signals they’re receiving from policymakers and politicians. All indications are that owners are eager to do more, but they’re uncertain about what the future holds and can’t find workers to fill the jobs they have open.”
Sources: Econoday, NFIB, Bloomberg, Twitter, FRBSL