This year, the NFIB small business confidence index has been a strong point in the sea of economic data. For the first time this year, the index had a decent decline. The index fell 2.3 points to 103 in September. That’s the largest decline since October 2013. The overall metric is still near the peak, but it’s heading on the path of ‘great to good.’ The chart below gives a breakdown of each of the segments in the survey. The index which showed the biggest change from August was the expectations for real sales to be higher. It fell from 27% to 15%, meaning 15% more businesses expected sales to be better than the percentage who expected sales to be worse. Expectations are a leading indicator, so any weakness is disconcerting for the rest of the year. The other big weak point was whether now is a good time to expand. The net result in that question was -10% showing how the environment for small businesses weakened sharply.

The obvious question is how much this data was impacted by the hurricanes. The small businesses were more effected by the weather than large ones. However, the NFIB is saying the weakness from the hurricanes didn’t cause this negativity because there was a drop in sales expectations across the country. According to Juanita Duggan, NFIB President and CEO, “the temptation is to blame the decline on the hurricanes in Texas and Florida, but that is not consistent with our data. Small business owners across the country were measurably less enthusiastic last month.” This is disconcerting as small business drives the labor market. I always knew the peak levels of optimism weren’t sustainable. This could be the start of a trend downwards. This negative trend would be consistent with what the ECRI leading indicators report has been showing for the past few weeks.

According to the NFIB chief economist, the adjusted employment change per firm fell -0.17. The chart below shows this is one of the worst reports since the 2008 recession. This is consistent with the weakness seen in the ADP private sector employment report and the BLS employment report. The inconsistency is that we’ve been told this weakness in the labor reports I cited was caused by the hurricanes. The only way to tell the cause of the weakness is to look at the ADP report on small businesses in October.