Small business optimism for the month of August showed a modest decline and also missed expectations. While economists were expecting the headline index to increase from 94.6 up to 94.8, it actually declined down to 94.4. As shown in the chart below, small business optimism remains below its average of 96.0 going back to 2000 and is well off of its current cycle high of 100.3 back in December 2014.
The table to the right breaks down which issues small businesses currently consider to be their biggest problems. As is the case each month, the two biggest problems are Taxes and Government Red Tape at 21% and 20%, respectively. Next on the list is Quality of Labor, which was cited by 15% of small businesses. Perhaps the most notable move this month, though, was Cost of Labor, which shot up from 6% up to 9%. As shown in the chart below, this is the highest reading for Cost of Labor in at least ten years. While inflation remains subdued and below the Fed’s target rate, if moves like the one we saw this month in the cost of labor keep up, you can expect overall inflation to follow suit.