Small Business Optimism Index Falls Below 52-Year Average to 97.9

A small drop that matters more than its size

In September, the National Federation of Independent Business (NFIB) Small Business Optimism Index fell 0.8 points to 97.9. That puts it one-tenth of a point under its 52-year average of 98.0.2 On its own, a tenth of a point means almost nothing. The NFIB's research team was careful not to sound alarmed, and its executive director of research, Holly Wade, said small business sentiment is in an "OK place" for now.9 Underneath the headline number, though, the survey shows a group of owners squeezed from several directions at once. Fuel and material costs are rising. Skilled workers are hard to find. And credit got more expensive after the Federal Reserve raised rates in September for the first time since 2023.

The result also came in a little below forecasts. One market tracker said consensus was 98.2 and called the reading a three-month low and the weakest since June's 97.4.12 Another calendar had put consensus at 98.1 The two forecasts differ slightly, but they agree on the direction. After two months above the long-run line, the index is back below it.7

Owners are less sure about their own businesses

The sharpest change in September was in how owners rate their own businesses, more than in what they expect from the economy. In one month, the share rating their business "good" fell from 57% to 48%, and the share saying "fair" rose from 28% to 35%.9 Wade called this a "significant deterioration."9 Owners' views of the wider economy can swing with the news. A nine-point drop in how they rate their own operations is a bigger warning sign.

The forward-looking measures point the same way. Only 7% of owners said it was a good time to expand, down 5 points. That ties April and May for the lowest reading since October 2024.12 A net 6% expect business conditions to improve over the next six months, down 4 points and the second monthly decline in a row.5 The NFIB's Uncertainty Index rose to 90, well above its historical average of 68.3 Of the index's ten components, six fell, three rose and one held steady.14

Not everything was negative. Expected real sales rose 3 points to a net 9%, and hiring plans held steady at a net 17%.7 The NFIB's own commentary said consumer spending and the AI boom should keep the economy growing at a healthy pace through year-end. It flagged the midterm elections and the war with Iran as major unresolved risks.12 Overall, owners are not reporting collapsing demand. They are holding back on growth while costs stay high.

Costs: energy is the main driver

Inflation was the top problem for 20% of owners, up 4 points in a month and almost three times its historical average of 7%.520 Across the coverage, energy is the clearest reason. The NFIB said owners are still adjusting to higher fuel, energy and other costs.3 Wade tied much of the price pressure to energy. She said sentiment took a hit once owners lost hope that fuel prices would fall quickly.9

AAA's numbers show how large the increase has been. Gasoline averages $4.34 a gallon and diesel $6.28, up from $2.98 and $3.76 just before the war with Iran began.9 One business publication put diesel's rise over the past year at about 72%.11 A Georgia retailer quoted by the NFIB said fuel was hurting the business in two ways: higher costs for its own delivery trucks and freight, and less money in customers' pockets.11

Owners are passing much of this on to customers. A seasonally adjusted net 31% raised average selling prices in September, the third straight month at that level and far above the historical norm of 14%.12 Planned price increases rose 3 points to a net 31%, the highest since June.12 Profits are falling anyway. Among owners reporting lower earnings, 34% blamed weaker sales and 24% blamed higher material costs, up 6 and 8 points.12 Raising prices is not fully covering higher costs, and margins are thinning, which matches the Wyoming NFIB director's point about how thin margins already are on Main Street.10

The wider data shows the same pressure. Consumer prices rose 3.7% from a year earlier in September.15 The personal consumption expenditures index was up 3.4% year over year in August.11 The International Monetary Fund expects U.S. consumer prices to rise 3.6% this year, and its chief economist said central banks should stay restrictive.11

Hiring: fewer openings, but workers still scarce

Labor quality or availability was owners' top problem for the third month running, cited by 26%. That is up 3 points and 14 points above its historical average of 12%.1216 The share of owners with job openings they could not fill fell 3 points to 32%, still 8 points above normal.8 Of the 51% of owners hiring or trying to hire, 87% said they had few or no qualified applicants.8

The drop in openings is not good news. Fewer owners are trying to hire, down 5 points, and net employment changes over the past three months stayed at minus 7%, the weakest since June 2025.12 The share of owners raising pay fell to a net 28%, tied for the lowest since November 2025.7 Owners are hiring less, but that does not mean workers have become easier to find.

Two explanations come up in the reporting. Wade said small construction firms cannot find electricians, plumbers and HVAC technicians because large companies building data centers and AI infrastructure can outbid them on pay and benefits.9 One business outlet also pointed to the immigration crackdown, along with war-driven inflation, as a drag on small business hiring.11 Both pressures fall hardest on firms that cannot raise wages to compete. Labor costs, meanwhile, were the top problem for only 6% of owners, the lowest since December 2020.12 Owners say their problem is finding workers, not paying them.

Lending: higher rates start to bite

On September 16, the Fed raised the federal funds rate by a quarter point to a range of 3.75% to 4%. The vote was 12-0, and it was the first increase since July 2023.22 Major banks raised their prime rate from 6.75% to 7% the next day.23 Most officials expect another hike before year-end.22 The next policy meeting is October 28.27

The NFIB survey already shows the effect. A net 8% of owners said they paid a higher rate on their most recent loan, up 4 points and the highest since June 2025.5 The average rate on short-term loans rose from 7.5% to 8.2% in a month.17 That is close to the historical average of 8.3%, which shows how unusual the earlier low-rate period was.5 The NFIB's commentary said market rates had followed the Fed's move.12

Owners are also borrowing less. Only 22% borrow regularly, tied for the lowest since November 2021 and well below the historical average of 34%.12 Capital spending plans fell 2 points to 22%, and both actual and planned spending are below their long-run averages.12 Only 3% named financing and interest rates as their top problem.12 Taken together, these numbers suggest rates are stopping owners from borrowing at all, more than they are straining owners who already carry debt.

Business credit cards: where higher rates show up first

For many small firms, the main source of short-term credit is a business credit card, not a bank loan. Cards are almost always variable-rate and already the most expensive option, so they reprice fastest when the Fed moves.23 Business lines of credit, credit cards and variable-rate SBA 7(a) loans tied to prime usually adjust within a billing cycle or two. Fixed-rate SBA 504 loans do not.21 Business card APRs already run from about 17.49% to 28.99%. SBA 7(a) maximum rates rose 0.25 points at every loan size after prime moved.27

One rate hike costs relatively little, about $250 a year on $100,000 of prime-based debt.22 The bigger risk is more hikes on top of it, which the Fed's projections suggest.23 Under the current pressures, an owner who covers higher fuel and freight bills by carrying a card balance is paying today's costs with the most expensive credit available, and that credit is getting more expensive.

The pressure is uneven. Federal Reserve data shows women-owned firms were fully approved for loans less often, and analysts expect lenders to become pickier as rates rise.21

What to watch next

The September reading fits a pattern of gradual weakening, not a crisis. Owners are still raising prices, still expecting sales to grow and still trying to hire. What has changed is that energy costs, a shortage of skilled workers and a Fed now raising rates are all hitting at the same time. The sample is also small: the NFIB got 411 usable responses from 5,000 owners it contacted.14 Month-to-month moves of a few points should be read with that in mind.

The October report is due November 10.1 Three things are worth watching. First, whether the share rating their business "good" recovers. Second, whether the share of owners who borrow regularly keeps falling. Third, whether planned price increases keep climbing. A further Fed hike and stubbornly high diesel prices would make it hard for the index to get back above its long-run average.