Due to heightened uncertainty before the November 5 presidential election and expectations of weak sales, the US small business confidence index declined in August, reversing the upward trend of the previous month. Specifically, the National Federation of Independent Businesses (NFIB) indicated in a Tuesday report that its Small Business Optimism Index fell 2.5 points to 91.2 last month, a decline after reaching its highest level since February 2022 in July.

The “uncertainty index” in the survey rose 2 points to 92, the highest level since October 2020. The proportion of companies whose inflation-adjusted sales volume is expected to rise in the next three months fell by 9 percentage points to -18%.

“Uncertainty is clearly rising,” said Bill Dunkelberg (Bill Dunkelberg), chief economist at the National Federation of Independent Businesses. “The stock market has also shown some unease, and the election is only a few weeks away.”

According to information, small business owners generally tend to support the Republican Party. Some economists believe that the previous increase in confidence was mainly due to political factors and the impact of rising stock markets, especially after Democratic presidential candidate Joe Biden did not perform well in the debate with Republican candidate Donald Trump.

However, after Biden withdrew from the election campaign and Vice President Kamala Harris took over, economists predicted that the confidence index would reverse. The intense competition between Trump and Harris and the lackluster performance of the stock market seem to have had an impact on the confidence of small business owners.

It's worth mentioning that although concerns about inflation remain among business owners, those concerns have abated, and the number of businesses reporting higher average sales prices has also decreased. As the inflation rate falls towards the Federal Reserve's target, the Federal Reserve is shifting its policy focus to the job market and preparing to cut interest rates. The impact of inflation data on US stocks has weakened, and the market's focus has turned to the weakness of the job market and whether the Federal Reserve can avoid a hard economic landing.

Eric Diton, president and managing director of Wealth Alliance, said, “The key question facing stock market investors is whether the Federal Reserve is waiting too long to cut interest rates because the risk of a recession is higher now than two months ago. Suddenly, inflation is no longer a major issue.”

Furthermore, despite declining employment opportunities across the country, labor shortages are still a challenge for small businesses, leading to a rise in the proportion of business owners planning to raise their pay over the next three months.

In August, 40% of business owners said there were job vacancies that could not be filled, an increase of 2 percentage points over July. Most vacancies are for skilled workers, mainly in the transportation, construction, and manufacturing industries. However, plans to create employment continue to decline, which is in line with the trend of slowing growth in non-farm payrolls.

At the same time, the proportion of business owners planning to make capital investments has increased, and many have purchased new equipment and improved or expanded facilities. Only a few say financing is the biggest business issue they face.

Currently, the market expects the Federal Reserve to cut interest rates next week to begin the easing cycle by cutting interest rates by 25 basis points. Since more than a year ago, the Federal Reserve has maintained the policy interest rate in the range of 5.25% to 5.50%, and raised 525 basis points in 2022 and 2023, respectively.

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