Small business optimism fell sharply in August, driven by rising inflation, weakening sales expectations, and increased uncertainty, according to the latest NFIB survey.

Small business optimism fell sharply in August, erasing gains made in July, as inflation and economic uncertainty weighed heavily, according to the National Federation of Independent Business (NFIB) survey released Wednesday.

The NFIB’s Small Business Optimism Index dropped 2.5 points to 91.2, marking the 32nd consecutive month the index has remained below its 50-year average of 98. The report points to growing concerns among business owners about rising costs, weakening sales expectations, and economic pressures. The Uncertainty Index, which gauges how small businesses view future conditions, rose to 92, its highest level since October 2020.

“The mood on Main Street worsened in August, despite last month’s gains,” said NFIB Chief Economist Bill Dunkelberg. “Historically high inflation remains the top issue for owners as sales expectations plummet and cost pressures increase. Uncertainty among small business owners continues to rise as expectations for future business conditions worsen.”

Twenty-four percent of business owners surveyed cited inflation as their most pressing problem, down one point from July, but still the most common concern. Other factors driving pessimism include falling sales expectations and shrinking profit margins. The net percentage of business owners expecting higher sales volumes fell nine points to negative 18 percent, a major contributor to the overall decline in optimism.

Small businesses are also facing challenges in the labor market. Forty percent of owners reported job openings they could not fill, up two points from July, as they continue to struggle with finding qualified workers. Despite the labor shortage, a seasonally adjusted 20 percent of owners plan to raise compensation in the next three months, reflecting continued wage pressures.

Capital investments showed slight improvement in August, with 56 percent of owners reporting outlays in the past six months, up two points from July. Among those making investments, 40 percent reported spending on new equipment, 21 percent acquired vehicles, and 18 percent improved or expanded facilities. Credit conditions remained stable, with only 3 percent of small business owners reporting that all their borrowing needs were not met. However, 7 percent said their last loan was more difficult to obtain compared to previous attempts.

Bill Herrle, NFIB’s Florida Executive Director, cited concerns over the rising uncertainty, particularly in Florida, where small businesses face the threat of tax hikes. He urged Congress to enact a 20 percent Small Business Deduction permanent to provide relief to owners grappling with economic challenges.