Small Business Optimism Pulls Back as Labor Quality Remains the Top Concern

The NFIB Small Business Optimism Index decreased 1.1 points to 98.7 in August, remaining slightly above the 52-year average of 98. August’s loss was led by a decline in expected business conditions. Of the 10 components in the index, two increased, while six decreased and two stayed the same. Meanwhile, the Uncertainty Index fell 2 points to 89, still well above the 51-year average (68) and above the average since 2016 (80).

Labor quality or availability was again cited as the top concern for small business owners in August, with 23% reporting it as the most important problem, down 4 points from July. In addition, 82% of owners who are hiring or trying to hire reported few or no qualified applicants for the positions they were trying to fill. The share of businesses reporting taxes as the most important problem was unchanged at 16%. Meanwhile, sharing the second spot was inflation, which rose 2 points, with a net 31% of owners raising prices.

A net 31% of small business owners reported raising compensation, unchanged in August after rising 3 points in July. Meanwhile, 18% of business owners plan to increase compensation in the next three months, down 1 point from July. Pressure on profitability strengthened in August, with positive profit trends declining 3 points from July to a net negative 19%. Among owners reporting lower profits, 28% blamed weaker sales, 16% cited rising material costs, 10% mentioned price changes, 9% reported usual seasonal changes, 9% cited labor costs and 7% noted insurance costs. Meanwhile, 3% of owners reported their last loan was harder to get than previous attempts, down 2 points from July, and a net 4% of owners cited paying higher interest rates on their most recent loan, unchanged from the prior month.

The outlook for general business conditions fell 5 points to 10%, after rising 2 points in July. At the same time, expectations for better business conditions are down 24 points from August 2025. Meanwhile, 12% reported it was a good time to expand their business, consistent with July but a weak reading compared to times of economic expansion. Overall, small business owners are less optimistic as expected business conditions worsened.