The NFIB small business optimism index in August shows the index on the rise for the fourth month in a row. It is also the third month in which it registers above the 52-year average of 98. However, the increase is mostly in a single component with the remainder showing normal month-to-month movements. To some extent small businesses are finding their way through the confusion of trade and tariff policy but these also continue to have difficulties in attracting and retaining workers. Businesses also report less uncertainty, although the uncertainty index remains elevated. It is down 4 points to 93 in August.

The NFIB small business optimism index up 0.5 points to 100.8 in August after 100.3 in July. The August reading is not materially different from the consensus of 100.5 in the Econoday survey of forecasters. The index is the highest since 102.8 in January. It has yet to consistently recover to pre-pandemic levels. For the moment, it suggests that fears of a recession and/or inflation have receded.

Four of ten index components are higher in August, four are lower, and two are unchanged. The largest increase is 6 points in expectations for higher sales to 12 percent, the highest since 14 percent in February. There are smaller gains of 3 points in current inventory to 0 percent and the earnings trend to minus 19 percent. Declines are modest wit the largest 2 point decreases to 34 percent in expectations for the economy to improve and 14 percent in now is a good time to expand.

The index components related to labor are little changed in August. Plans to increase employment is up 1 point to 15 percent while current job openings is down 1 point to 32 percent. Current job openings are the lowest since 30 percent in July 2020. In August, 21 percent of survey respondents cited quality of labor as their single most important problem.

The index is expected almost flat at 100.5 in August from 100.3 in July. Small business sentiment has steadied after recovering from early-year lows as tariff fears have eased.

The small business optimism index is compiled from a survey that is conducted each month by the National Federation of Independent Business (NFIB) of its members. The index is a composite of 10 seasonally adjusted components based on the following questions: plans to increase employment, plans to make capital outlays, plans to increase inventories, expect economy to improve, expect real sales higher, current inventory, current job openings, expected credit conditions, now a good time to expand, and earnings trend.

Small businesses are responsible for a majority of new job creation and the NFIB focuses on this sector of the economy. The direction of the health of small businesses can portend changes in the stock market - especially small caps.