The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for August came in at 103.1, down 1.6 from the previous month. The index is at the 87th percentile in this series.

Here is an excerpt from the opening summary of the news release.

The NFIB Small Business Optimism Index fell 1.6 points to 103.1, remaining within the top 15 percent of readings. Overall, August was a good month for small business. However, optimism slipped because fewer owners said they expect better business conditions and real sales volumes in the coming months. Job creation accelerated, positive earnings trends improved, and quarter-on-quarter sales gains remained strong.

“In spite of the success we continue to see on Main Street, the manic predictions of recession are having a psychological effect and creating uncertainty for small business owners throughout the country,” said NFIB President and CEO Juanita D. Duggan. “Small business owners continue to invest, grow, and hire at historically high levels, and we see no indication of a coming recession.”

The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example, the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings following the Great Recession that ended in June 2009.

Here is a closer look at the indicator since the turn of the century.

The average monthly change in this indicator is 1.3 points. To smooth out the noise of volatility, here is a 3-month moving average of the Optimism Index along with the monthly values, shown as dots.

Here are some excerpts from the report.

Labor Markets

Job creation picked up in August, with an average addition of 0.19 workers per firm compared to 0.12 in July. Finding qualified workers is becoming more and more difficult with a record 27 percent reporting finding qualified workers as their number one problem (up 1 point).

Inflation

How effective has the Fed's monetary policy been in lifting inflation to its two percent target rate?

The net percent of owners raising average selling prices fell 5 points to a net 11 percent, seasonally adjusted, reversing most of the 7 point surge in June.

Credit Markets

Has the Fed's zero interest rate policy and quantitative easing had a positive impact on Small Businesses?

Four percent of owners reported that all their borrowing needs were not satisfied, up 1 point but historically near a record low. Thirty-one percent reported all credit needs met (up 3 points) and 52 percent said they were not interested in a loan, down 4 points.

NFIB Commentary

This month's "Commentary" section includes the following observations and opinions:

Wall Street commentators joined by some economists have produced a cacophony of warnings about a coming recession. Not joining the noise is half the U.S. economy: small businesses.

The economy is now entering the pre-election fog that will produce many unrealistic but attractive promises, more government spending, and likely continued reductions in interest rates. The Federal Reserve will continue to respond to Wall Street wishes and money will continue to flood our bond markets from an underperforming “rest of the world.” Virtually all except the Fed will be happy with low inflation. A rule of thumb definition of a recession is back-to-back quarters with negative GDP growth. The third quarter will definitely be positive, leaving only Q4 and the first three quarters of 2020 to experience a recession. Consumer spending has been strong and will likely carry though into 2020. Main Street is doing well. So the odds of a recession before the election are slim. Time is running out for those rooting for a recession. But they should be reminded that recessions hurt lots of people, not just decide election outcomes.

Business Optimism and Consumer Confidence

The next chart is an overlay of the Business Optimism Index and the Conference Board Consumer Confidence Index. The consumer measure is the more volatile of the two, so it is plotted on a separate axis to give a better comparison of the two series from the common baseline of 100.

These two measures of mood have been highly correlated since the early days of the Great Recession. The two diverged after their previous interim peaks, but have recently resumed their correlation. A decline in Small Business Sentiment was a long leading indicator for the last two recessions.