Small Businesses Shy From Expansion

Sep 9, 2025

This morning’s release of the NFIB’s gauge on small business optimism saw the headline index climb to 100.8, the strongest level since January. While there was an increase in the Optimism Index, under the hood, breadth was more mixed. For example, the outlook for the economy and the share of respondents viewing now as a good time to expand were both lower month over month. With regards to the former, the two-point decline still leaves the index in the 88th percentile of readings historically, whereas the latter is now below the historical median.

In addition to the index on expansion outlook, the report also details the reasons respondents give for various outlooks. Of those who view now as a good time to expand, only 1% pointed to sales prospects as the reason, while another 5% pointed to the political climate, and another 6% credited economic conditions. As for negative or uncertain responses, the bulk of responses (21% and 13% respectively) blamed economic conditions. While that reason accounted for the bulk of responses, costs are also appearing to be prohibitive. As shown below, for negative and uncertain expansion outlooks combined, 16% of responses blamed the cost of expansion, which is a record high for the series going back to at least 2013.  While not at a new high, financials and interest rates have also risen recently, albeit with rate cuts on the horizon, so that reading could pivot lower in the near future. While any further details on what exactly the reasons may be are unfortunately unavailable, we would also note that “other” responses have likewise risen and came in at the high end of the past few years’ range.

While high costs may appear to be the reason firms are not viewing now as a good time to expand, other data in the report counters this argument. For example, the combined share of respondents who view their most important problems as either inflation, cost of labor, or cost/availability of insurance has continued to fall. Likewise, the share of respondents reporting higher prices is also at the low end of the post-pandemic range.

As noted previously, the NFIB survey tends to show political bias with favoritism toward Republican administrations. In other words, small business sentiment has historically tended to be better when a Republican is in office.  For example, during Democratic administrations, an average of 13.9% of responses from respondents with a negative expansion outlook have blamed politics, but during Republican administrations, the average declines to 6.4%.  Below we show the combined responses for negative and uncertain outlooks that have blamed politics. While Trump’s election resulted in a sharp decline earlier this year, there had been a rebound as policies like tariffs began to roll out. In the past few months, though, those politics-based negative outlooks have once again reverted lower and are nearing record lows. This dynamic of possibly temporary policy shocks to sentiment is something that we discussed related to the report’s labor data in today’s Morning Lineup.

Finally, we would note that while overall labor market indicators have shown modest improvement, or at the very least stability, one exception is the share of respondents reporting that job openings are hard to fill. As shown below, that category is now showing its weakest levels since December 2020.