Commentary Directory

Small Businesses Grapple with Inflation and Financial Strain in September

Jacob Hess
October 10, 2023

The NFIB Small Business Optimism Index remains below its long-term average for the 21st consecutive month, dropping by -0.5 pts to 90.8. This decline was primarily driven by sub-indexes like Economic Expectations, down -6 pts to -43, and Expected Credit Conditions, down -4 pts to -10. However, several other sub-indexes, like Job Openings and Hiring Plans, showed modest gains.

The Job Openings index saw a 3 pt increase, reaching 43, the highest level since May of this year. This aligns with the spike in job openings reported in the September JOLTS data. Additionally, the Hiring Plans index edged up by 1 pt to 18, also the highest since May. Despite the positive indicators in job openings and hiring plans, the Current Employment Changes index remained negative for the sixth consecutive month at -2. This is likely due to ongoing labor supply issues faced by small businesses. The Qualified Applicants for Job Openings index increased by 3 pts to 57, the highest level this year, and this lack of qualified workers continues to keep labor markets tight and wage growth high.

Let’s turn to the closely watched inflation indexes which showed that inflationary pressures were sticky in September. The Actual Price Changes index increasing by 2 pts to 29, the highest since June. The Price Plans index remained unchanged at 30, marking the second-highest reading in 2023. These index readings in September suggest a slowing in the disinflation trend caused by higher goods input costs, especially energy input costs. Indeed, inflation is still the (joint) highest problem for small businesses with 23% of respondents reporting this in the survey.


Despite the hang up in inflation, the effects of the Federal Reserve's rate hikes are becoming increasingly evident. The average interest rate paid by small businesses rose to 9.8% in September, the highest since before the Great Financial Crisis, up from 9.0% in August. The Expected Credit Conditions index dropped to -10, its lowest in a decade. Given the combination of lower consumer demand and tighter financial conditions, it seems almost inevitable that small businesses will face some sort of recession as the economic environment becomes increasingly challenging.