Although a number of economic data-points showed a rebound in September, the latest release of small business sentiment from the NFIB showed further weakness. While economists were forecasting the headline index to come in at 95.0, the actual reading was 94.1, which was down modestly from 94.4. With this month’s decline, the headline reading is not only still well below its average of 96.0 since 2000, but also just 1.5 above its recent low of 92.6. Based on the commentary in this month’s report, when it comes to politics, small business owners are not optimistic. As noted in the report, “The presidential election is so divisive that it offers little promise of a bipartisan effort to deal with any of these important issues once a new management team is installed in Washington D.C. Fiscal policy, badly in need of an overhaul, will face similar challenges. The political impasse leaves owners with the prospect of slow growth, more uncertainty and little capital spending beyond ‘maintenance’.”
When it comes to the largest problems being faced by small business owners this month, there were some interesting shifts. The table to the right shows the percentage of small businesses citing various issues as their “number one problem.” As is nearly always the case, “Taxes” tops the list at 22%, which is up from 21% in August. Right behind the taxman and tied for second place is “Government Regulations/Red Tape,” but at 17%, this issue saw a sizable decline from 20% in August. That now puts it at the same level as “Quality of Labor,” which increased two percentage points up to 17% from 15% in August.
The percentage of companies citing labor quality as their biggest problem is now at its highest level since at least 2008, and it comes on the heels of last month’s survey where a record 9% of small business owners cited “Cost of Labor” as their number one problem! In the case of costs this month, the percentage of business owners citing it declined, but these two moves suggest that when it comes to labor, small business owners are having issues. If you aren’t willing to pay up for labor, quality is likely to suffer, but if you do pay up, costs increasingly become an issue. The chart below shows the combined percentage of small business owners citing Quality or Costs related to labor as their number one problem each month. At 23%, this reading is just off a ten-year high of 24% hit last month.