The NFIB small business optimism index in September is down 2 points to 98.8, below the consensus of 100.5 in the Econoday survey of forecasters. The index is above the 52-year average of 98 for a fifth month in a row but has lost ground after two stronger months is July and August. Small businesses are facing an array of challenges including loss of labor to harsh immigration policies, rising prices related to trade and tariffs, knock-on effects of DOGE cuts, and a shutdown of the federal government. Additionally, geopolitical events are weighing on the economic outlook. The NFIB uncertainty index gains 7 points to 100 in September, the highest since 104 in February when full scope of the Trump administration's policies were not yet unclear.

The decline in the index in September reflects lower readings for 5 of the 10 index components, while 2 are higher and 3 are unchanged. The largest is an 11-point drop in expectations for the economy to improve to 23 percent, erasing much of the more optimistic view of the future economy seen during the summer months. The component for current inventories too low is down 7 points to minus 7 percent after many businesses stocked up earlier this year to avoid some cost increases. Worries may be emerging that spending will slow in the final months of the year as consumers and businesses become more cautious and that inventories will be drawn down less quickly.

The components related to the labor market point to essentially unchanged conditions in September. The reading for plans to increase employment is up 1 point to 16 percent and may be due to greater availability of labor to hire or from loss of workers that needs to be addressed. The subcomponent for qualified applicants is up 7 points to 50 percent and suggests that finding the right hire could be more difficult.

Eighteen percent of survey respondents cited taxes as their single-most important problem in September, little changed from 17 percent in August. Another 18 percent said it is the quality of labor, down three-tenths from the prior month. The next highest share is 14 percent citing inflation which is up three-tenths from August.

The index is expected nearly steady at 100.5 in September versus 100.8 in August and 100.3 in July.

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.