Optimism among U.S. small businesses has fallen by the most in more than two years

Optimism among U.S. small businesses fell the most in more than two years last month as corporate earnings deteriorated and the outlook for sales and the economy grew gloomier.

The National Federation of Independent Business's (NFIB) small-business optimism index fell 2.5 points in August, the biggest drop since June 2022, to 91.2. The decline erased nearly half of the gains of the previous four months.

Eight of the index's ten subcomponents fell, led by a 9 point decline in sales expectations. As high prices, interest rates and Labour costs continued to take their toll, some 37 per cent of companies said earnings had deteriorated, the highest share since 2010.

Of the companies reporting lower profits, 31 per cent blamed weaker sales, 17 per cent on material prices and another 13 per cent cited Labour costs. Nearly a quarter of business owners cited inflation as their biggest single problem, well above the long-term average of 3 percent between 1986 and mid-2020, according to the report.

As a result, small businesses have scaled back hiring plans. The net share of business owners planning to create jobs in the next three months was 13 percent, down 2 percentage points from the previous month.

The NFIB Uncertainty Index rose two points to its highest level since October 2020.

The NFIB survey had 590 respondents as of Aug. 29.