The NFIB Small Business Optimism Index slipped to 98.7 in August, down 1.1 points from July’s 99.8, which had been the highest reading since August 2025. The index remains above its 52-year average of 98.0, but the pullback erased most of July’s hiring driven gain. The NFIB Uncertainty Index fell 2 points to 89, still well above its historical average of 68. NFIB Chief Economist Bill Dunkelberg attributed the mood to a mixed set of pressures, citing weakened sales, supply chain disruptions, and inflation pressures even as owners continue to rate the health of their individual businesses as reasonably solid.
Underneath the headline number, the components diverged sharply. Labor quality or availability eased 4 points to 23 percent as the top reported problem, though that reading sits 11 points above its long run average. Inflation moved the other direction, rising 2 points to 16 percent and tying with taxes as the second most cited concern, a full 9 points above its historical average of 7 percent. Actual sales worsened meaningfully, with a seasonally adjusted net negative 9 percent of owners reporting higher nominal sales over the past three months, the lowest reading since November 2025 and a 5 point drop from July. Profit trends fell 3 points to a net negative 19 percent, and capital spending plans slipped a point to 24 percent, still below their historical average. A seasonally adjusted net 31 percent of owners reported raising average selling prices in August, unchanged from July but well above the 14 percent historical norm, and just as many plan further increases over the next three months.
The report’s macro backdrop helps explain the split between soft sentiment and sticky prices. Dunkelberg’s commentary pointed directly to the war in Iran as a source of elevated energy costs flowing through to input prices across sectors, compounding the inflation readings even as consumer demand cools. He also drew a contrast between the AI driven investment boom, which is funding data centers, power generation, and office construction and lifting equity markets, and the experience of the typical small business owner, where that capital spending has yet to show up. With a third of owners still raising prices and roughly the same share planning to raise them again, the report suggests the Federal Reserve’s path back to its 2 percent inflation target is not getting easier on the small business side of the economy, even as headline consumer inflation narratives elsewhere have moderated.
The central tension in the August data is the widening gap between Wall Street and Main Street. Large scale AI capital expenditure has released substantial purchasing power for investors positioned in it, while small business capital spending remains below trend and suppressed by uncertainty, according to the report’s own commentary. That divergence matters for portfolio construction because small businesses account for roughly half of US private sector employment, and softening hiring plans, down 3 points to a net 17 percent, alongside declining actual hiring activity, are typically an early signal for broader labor market cooling before it shows up in headline payroll data. If consumer facing sectors continue to see the kind of sales deterioration reported in August, that weakness could eventually pressure the earnings of companies more exposed to Main Street demand than to enterprise AI spending, even while the index level itself remains technically above its long run average.
Whether August proves to be a blip or the start of a trend will depend heavily on the September reading and on developments overseas. NFIB’s own commentary flagged resolution of the Iran conflict as a potential catalyst that could meaningfully reduce uncertainty and energy costs, while cautioning that if elevated equity valuations were to correct, domestic spending could slow further even as the broader economy holds up. Investors watching for confirmation of a genuine slowdown, as opposed to a single month’s noise, should look for whether hiring plans and capital expenditure intentions stabilize in the next report or continue drifting toward the index’s 98.0 long run average.
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