Small Business Optimism Slips to 97.9 as Loan Rates Climb

Main Street Mood Slips Below Its Long-Run Average

American small business owners started the fall a little more nervous than they ended the summer. The National Federation of Independent Business (NFIB) said its Small Business Optimism Index fell 0.8 points in September to 97.9. That leaves it one-tenth of a point under the survey's 52-year average of 98.0.11 The group's Uncertainty Index went the other way, rising 1 point to 90. The historical norm for that gauge is 68.12

On its own, a decline of less than a point is easy to dismiss. Several outlets framed it as a modest move. One called it a three-month low17, and another noted it was the weakest reading since June's 97.4. Both descriptions are accurate. The NFIB's monthly series shows the index climbing to 99.8 in July, easing to 98.7 in August and then landing at 97.9.14 The headline number, though, hides more strain than it shows. The details of the September report point to owners who are paying more to borrow, struggling to hire, and becoming less sure their own businesses are healthy.

What Pulled the Index Down

The NFIB tracks ten components. Six fell in September, three rose and one held steady. Weaker expectations for business conditions and fewer owners saying it is a good time to expand did the most damage.14 Only 7% of owners called it a good time to expand, down 5 points from August.13 A net 6% expect conditions to improve over the next six months. That is 4 points lower than in August and the second monthly decline in a row, although it is still above average.12

The rise in uncertainty had specific causes. The NFIB said more owners were unsure whether now is the right time to expand and unsure about their capital investment plans.14 Spending data show the same hesitation. Fifty-one percent of owners made capital outlays over the past six months, down 2 points. Spending on new equipment, vehicles and fixtures all fell. Only 22% plan outlays in the next six months.12

The most striking change came when owners rated 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%.7 Holly Wade, the NFIB's executive director of research, described this as a "significant deterioration" and something to watch in the coming months, even though she said overall optimism is in an "OK place."7 This is the clearest sign in the report that owners' worries are moving from forecasts about the economy to their own results.

Costs: Energy and Inflation Come Back

Inflation has returned as a top complaint. One in five owners named it their single most important problem, up 4 points from August. The long-run average for that answer is 7%.12 Owners are also raising prices. A net 31% raised average selling prices in September, compared with a historical average of net 14%. A net 31% plan more increases in the next three months, up 3 points.12

The profit data show where costs are hitting hardest. Earnings trends slipped to a net -20%. Among owners whose profits fell, 24% blamed rising material costs, up 8 points, and 34% blamed weaker sales, up 6 points.12 Comments from members describe the same squeeze. A Pennsylvania wholesaler said transportation costs need to fall. A Minnesota contractor said each round of price increases cuts further into the pool of homeowners who can afford the work.14 A Missouri manufacturer said it took a year of repricing to rebuild margins after suppliers passed tariff costs along.14

Coverage differs most on why this is happening. The NFIB's own messaging stresses rising costs, interest rates and hiring problems in general terms.11 Other reporting is more direct about energy. Wade said much of the price pressure comes from higher energy costs, and that optimism suffered once hopes faded for a quick drop in fuel prices.7 Diesel averages $6.28 a gallon, according to AAA figures cited in that report, compared with $3.76 just before the war with Iran began.7 Economists quoted by Xinhua went further. Dean Baker of the Center for Economic and Policy Research called high energy prices and the war "the big issues" and said owners see no quick end to the stalemate.5 The NFIB's own commentary lists the Iran war and the midterm elections as the major unresolved risks.12 The energy explanation fits the data better than the general cost explanation does. Inflation complaints are rising while concern about labor costs is falling: only 6% named labor costs as their top problem, the lowest share since December 2020.12

Lending: Borrowing Gets More Expensive

For anyone tracking small business credit, the lending figures may be the most important part of the report. A net 8% of owners said they paid a higher interest rate on their most recent loan, up 4 points from August and the highest reading since June 2025.12 The average rate on short-term loans rose to 8.2% from 7.5%.4 That puts it close to the historical average of 8.3%.5

The NFIB's commentary says the Federal Reserve raised its policy rate, as most observers had expected.14 The survey shows that increase reaching Main Street quickly. Credit is not drying up for now. A net 3% said their last loan was harder to get than before, the same as in August. Only 3% named financing and interest rates as their top problem.12 But expectations are worsening, with a net -3% expecting easier credit conditions, down 1 point.12

The overall picture is that credit is still available but costs more. That is the kind of slow pressure that can quietly shrink expansion plans. NFIB state directors have made the same connection. New Jersey's Eileen Kean said higher costs and rising interest rates are adding to uncertainty and "dampening Main Street investment." Illinois director Noah Finley used almost the same words about labor shortages and input costs.3 Because these are an advocacy group's own representatives, their message is expected to be consistent. Still, the capital spending numbers support what they are saying.

Labor: Still the Top Problem

Labor quality and availability was the top problem for the third month in a row. Twenty-six percent of owners named it, up 3 points and well above the long-run average of 12%.12 Hiring activity cooled, though. The share of owners hiring or trying to hire fell 5 points to 51%. Unfilled openings fell 3 points to 32%.12 Among those trying to hire, 87% found few or no qualified applicants. The NFIB's Employment Index fell 1.2 points to 100.6, below its 2025 average but still above its long-run baseline of 100.13

Wade linked the shortage of skilled tradespeople to the AI build-out. She said construction firms cannot find electricians, plumbers and HVAC technicians, and that large companies building data centers can outbid small employers on pay and benefits.7 The NFIB's own commentary takes a related view, noting that the AI boom has done little to change hiring overall because high-tech work is not labor-intensive.14 Taken together, these points suggest the AI investment wave is helping the broader economy while competing with small firms for the same skilled workers.

Reading the Signal

Other small business surveys do not fully agree. A separate third-quarter measure covered by ColoradoBiz showed confidence rising to 70.5 on better cash flow, despite inflation worries.4 Some individual owners are also doing well. A Virginia financial firm told the NFIB it expects a record year12, and an Indiana clothing retailer described itself as "cautiously optimistic," pointing to strength in its bridal and menswear lines.7 The NFIB's own outlook expects consumer spending and AI investment to keep the economy growing at a healthy pace through year-end.12

Even so, the September report deserves more attention than its small headline drop suggests. Almost everything that moved in the details moved the wrong way: owners' views of their own businesses, plans to expand, loan costs, and inflation as a top concern. Poor sales has now risen for three straight months as a top complaint and is tied with taxes at 11%.12 An Ohio service-business owner told the NFIB that customers are uncertain about their finances and "starting to cut back."12 If consumer demand weakens while energy and borrowing costs stay high, small businesses will have little room left to raise prices.

The timing also has political weight. The report arrived less than a month before the midterm elections, and analysts quoted by Xinhua described small business uncertainty as part of the affordability problem facing the governing party.5 Brookings' Darrell West said uncertainty usually leads businesses to slow hiring and spending.5 Whether September is a temporary dip or the start of a lasting decline will likely depend on fuel prices and the Fed's next move more than on anything owners themselves can control.