USMC - Inflation And Labor Still A Problem

Summary

• The NFIB’s latest small business survey showed sentiment rebounded in September, although labor market indicators decelerated further.
• While those reporting "cost of labor" as the biggest problem went unchanged, the percentage of respondents reporting quality of labor as their biggest concern dropped four percentage points to 22%.
• While the lower reading in labor market-related problems seems to reaffirm the slowing employment situation, inflation concerns ramped up modestly in September.

The NFIB released its latest small business survey on Tuesday morning with data as of the month of September. As we discussed in Tuesday’s Morning Lineup, the report showed sentiment rebounded in September, although labor market indicators decelerated further. That was also reflected in the report’s survey of what businesses consider to be their most important problem. While those reporting "cost of labor" as the biggest problem went unchanged, the percentage of respondents reporting quality of labor as their biggest concern dropped four percentage points to 22%. While there was an even lower reading as recently as July, it was the biggest drop since last December, and the current level has fallen out of the top decile of historical readings.

While the lower reading in labor market-related problems seems to reaffirm the slowing employment situation, inflation concerns ramped up modestly in September. 30% of businesses (versus 29% in August) reported inflation as their biggest concern. Additionally, another inflation-adjacent reading also rose, with 5% reporting the cost or availability of insurance to be their biggest problem.

On a combined basis, government-related concerns saw a net lower reading last month as well. Concerns around requirements and red tape rose up to a 5% share of responses, but those gains were offset by a two percentage point drop in the share of respondents seeing taxes as their biggest issue. With inflation and labor concerns remaining front and center of small business problems, government-related concerns continue to be muted to a historic degree.

While the bulk of responses view labor or inflation as their biggest issues - 62% of combined responses report one of these to be their biggest problem - there was a considerable pickup in those choosing “other” as their response last month. That reading rose from 5% to 8%, bringing it from a 14th percentile reading all the way up to the 65th percentile. That is now the highest reading since May, when it came in at an elevated 11%. Unfortunately, the report does not provide further detail as to what those “other” concerns specifically are, but geopolitical issues are likely part of the mix.

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