NFIB Optimism Index Slips to 97.9 as Costs and Loan Rates Rise

A small drop with bigger warning signs underneath

The main number from the National Federation of Independent Business's September survey looks minor. The Small Business Optimism Index fell 0.8 points to 97.9, which put it one-tenth of a point below its 52-year average of 98.0.11 Economists had expected a smaller decline, to 98.2.12 It was the lowest reading since June.20

Taken alone, a move that small would barely register. The details of the report tell a different story. Owners are less sure about the future, more worried about prices and paying more to borrow. They are also more likely to describe their own businesses as merely "fair." Our reading is that September was not a collapse. It was the point where rising costs started to show up in how owners judge their own businesses, and not only in how they feel about the wider economy.

The group's chief economist, Bill Dunkelberg, said owners are moving carefully as they work out what higher costs, higher interest rates and the shortage of qualified workers mean for their businesses.11

The health-rating drop deserves more attention

Most coverage led with the headline index. The more telling number was owners' ratings of their own businesses. The share calling their business "good" fell from 57% to 48% in one month, and the share calling it "fair" rose from 28% to 35%.13 Holly Wade, NFIB's executive director of research, called this a "significant deterioration" and said it is worth watching in the months ahead.1

The extremes barely changed. Thirteen percent rated their business as excellent, up from 11%, and 4% rated it as poor, up from 3%.1 Owners are not reporting a crisis. A large group has moved from feeling comfortable to feeling stretched, and that kind of shift often comes before cutbacks in hiring and spending.

Forward-looking measures point the same way. A net 6% of owners expect business conditions to improve over the next six months, down 4 points from August, and only 7% said it is a good time to expand, down 5 points.17 Expected conditions have now worsened for two months in a row.13 They are also 17 points below their level in September 2025.6 NFIB's separate Uncertainty Index rose 1 point to 90, well above its historical average of 68.14

Costs: energy, tariffs and prices passed on to customers

Inflation moved back up owners' list of problems. Twenty percent named it their single biggest problem, up 4 points and almost three times the historical average of 7%. It now ranks second only to labor quality.14 NFIB linked the decline in optimism to rising fuel, energy and other costs.14

The energy picture is severe. AAA figures cited in the coverage put average gasoline at $4.34 a gallon and diesel at $6.28, up from $2.98 and $3.76 just before the war with Iran began.1 Wade said much of the price pressure comes from energy costs, and that optimism took a hit as hopes for a quick drop in fuel prices faded.1

Profits are being squeezed. Reports of positive profit trends slipped to a net -20%. Among owners whose profits fell, 34% blamed weaker sales, up 6 points, and 24% blamed rising material costs, up 8 points.13 Owners are passing some of these costs on. A net 31% raised average selling prices, the same as in August and well above the historical average of 14%. Another net 31% plan to raise prices, up 3 points.1 TD Economics noted that the share of firms raising prices so far in 2026 is the highest since 2023.12

The New York chapter of NFIB put the pressure in local terms, pointing to state taxes, high energy bills, weaker sales and more expensive materials.4 One New York farm owner said in the survey that the business's biggest costs are labor, fuel and insurance.4

The store owner who is "cautiously optimistic"

The owner in the headline adds detail the data can't. Danny Reynolds runs Stephenson's of Elkhart, a clothing store in Indiana that is nearing its 95th anniversary. He called the business climate "erratic" but said he is "cautiously optimistic."1 His bridal business has been strong, and menswear is growing enough that he is expanding that part of the store.1

Costs are still his main problem. Reynolds said tariffs add to the pressure because the store depends heavily on imported goods, especially in the bridal salon. He has tried to absorb increases rather than pass large price hikes on to customers.1 He also joked that the store opened during the Great Depression in 1931, so it was built to last.1

His experience reflects a wider pattern. Businesses with strong product lines or loyal customers can keep growing, but their margins are under the same pressure as everyone else's. Reynolds's choice to absorb costs is the opposite of what the net 31% of price-raisers are doing, and it shows how differently owners are handling the same squeeze.

Lending: rates rise and borrowing falls

Credit is where the survey shows the clearest recent change. NFIB's commentary says the Federal Reserve raised its policy rate in September.13 A net 8% of owners said they paid a higher rate on their most recent loan, up 4 points and the highest share since June 2025.10 The average rate on short-term loans rose 0.7 points to 8.2%, close to the historical average of 8.3%.13

Loans are getting more expensive, but they are not getting much harder to obtain. A net 3% said their last loan was harder to get than before, unchanged from August, and expectations for easier credit dipped 1 point to a net -3%.13 Only 22% of owners borrow regularly, down 3 points and well below the historical average of 34%.13 Just 3% named financing and interest rates as their top problem.13

We read that low 3% as a sign of weak demand for credit, not a sign that credit is easy. Owners who don't plan to expand don't need loans. The American Bankers Association drew a similar conclusion. Its economists said slower expansion plans could reduce small-business borrowing, while inflation and labor costs could hurt margins and owners' ability to repay debt, which could slow commercial lending at banks.17 Capital spending fits this view: 22% of owners plan outlays in the next six months, down 2 points and below the long-term average.13 TD Economics adds that markets expect the Fed to raise rates further in the coming months.12 If that happens, the 8.2% average loan rate is likely to keep rising.

Alabama's NFIB state director, Rosemary Elebash, explained the reasoning: expansion, equipment and new hires all cost money, so owners want confidence that sales will cover those expenses before they commit.10

Labor is still the top problem

Costs got the most attention, but finding good workers remains owners' biggest complaint. Twenty-six percent named labor quality or availability as their top problem, up 3 points and first for the third month in a row.14 Of the 51% of owners hiring or trying to hire, 87% said they found few or no qualified applicants.10 Even so, a net 17% plan to add jobs over the next three months, unchanged from August.15

Wade said shortages are worst in construction, manufacturing and some service industries. She said small contractors cannot find electricians, plumbers and HVAC technicians, and cannot match the wages and benefits that large companies building data centers and AI projects can pay.1 This puts small employers in direct competition with some of the best-funded projects in the economy.

Other surveys disagree

The NFIB survey is not the only measure of small-business health, and other surveys don't all agree. The Justworks/US Chamber index found confidence improved significantly in the third quarter, with 72% of owners comfortable with their cash flow. Only 27% of those owners said the U.S. economy is healthy.9 Fiserv's payment data showed small-business sales improving in September, though with weaker customer traffic.9 Intuit's QuickBooks index found that businesses with one to nine employees lost 7,000 jobs in September.9 A holiday-season survey found 76% of small businesses expect to earn more this season than last year.8

These surveys can be reconciled. Most of them show demand holding up while costs, interest rates and uncertainty weigh on decisions. NFIB's own numbers support this: the net share of owners expecting higher real sales rose 3 points to 9%.12 NFIB's sample is also small. It got 411 usable responses, a response rate of 8.2%.13 One month's movements should therefore be read with care.

What it means

Our reading is that Main Street is operating normally but with growing strain. Demand is holding, while higher costs, more expensive credit and a thin supply of skilled workers are cutting into margins and making owners more cautious about growth. Wade's description of optimism as being in an "OK place" is fair.1 The figures worth watching are the share of owners rating their business as "good," the share planning to expand and the average loan rate. If those keep falling while rates rise, the next decline in the index is unlikely to be this small.