Small-business owner optimism did not “crash “ in September, but it did fall, dropping 0.20 from August’s (corrected) reading of 94.1 and landing at 93.9. The largest contributing factor to the dip was the significant increase in pessimism about future business conditions, although this was somewhat offset by a notable increase in number of small-business owners expecting higher sales. Overall, four Index components improved, four fell and two remained unchanged from August. While it is premature to measure the impact of the government shut-down on the small-business sector, it’s possible that the pending “crisis” impacted economic outlook. October’s reading will reveal the full effect of Washington’s latest crisis on the small-business sector, which has remained cautious throughout the recovery.

Twenty-four (24) 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 (20) 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. Most of the jobs “created” will likely be dominated by part-time workers as owners hedge their hiring while they try to fathom the health care law regulations and penalties.
• 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 asiImproved 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.

To read the full NFIB report, click here.