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First Cut: NFIB Small Business Optimism Index slips in September, continued moving for second month

The NFIB Small Business Optimism Index fell to 101.8 in September from 103.1 in August. Its reading is similar to the January-March period when the partial federal government shutdown threw a shoe into the works for small businesses and there were concerns related to payment of existing contracts and closing of future ones. The level is among the lowest since November 2016 when it was 98.4, just after the Presidential election and when small businesses anticipated a more favorable business climate. The present index readings are still quite positive in the historical context, but present economic conditions and worries about a recession have taken the shine off the sort of activity and expectations seen in 2017-2018.

The index had no components that were higher in September, 7 that were lower, and three were unchanged. The individual index components did not exhibit any outsized moves which might signal a one-off and short-term adjustment. Rather, declines were broad-based and those were mainly focused on the future. Tellingly, the largest decline was in the component for “now is a good time to expand” which fell 4 points to 22%, followed by “plans to increase employment” at down 3 points to 17% and “expectations for the economy to improve” which was also down 3 points to 9%.

The indexes related to employment suggested that present conditions were stable. Although plans for expansion of employment were down, those for “current job openings” were unchanged at 35% in September and remained at levels more consistent with modest expansion. The subindex for “actual compensation” was also unchanged at 29%, suggesting that the repaid gains of 2018 have lost momentum.

The indexes for “plans to increase inventory” and “current inventory” were both unchanged in September at 2% and -6%, respectively.  The readings suggest that the swift response to slower economic conditions earlier this year resulted in an quick adjustment of current inventories and no expectation that a rebuilding would be immediately necessary.

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