Uncertainty of the general election and weak sales drag down market expectations, with a sharp drop in small business confidence in the United States in August

According to the financial news app Zhitong Finance, due to increased uncertainty before the presidential election on November 5th and expectations of weak sales, the small business confidence index in the United States for August declined, reversing the previous month's upward trend. Specifically, the National Federation of Independent Business (NFIB) in the United States reported on Tuesday that its small business optimism index dropped by 2.5 points to 91.2 last month, following the highest level since February 2022 reached in July. The "uncertainty index" in the survey increased by 2 points to 92, the highest level since October 2020. The proportion of companies expecting an increase in sales volume adjusted for inflation in the next three months decreased by 9 percentage points to -18%.

"Uncertainty is clearly on the rise," said Bill Dunkelberg, Chief Economist of the NFIB. "The stock market also shows some anxiety, with only a few weeks left until the election."

It is understood that small business owners generally tend to support the Republican Party. Some economists believe that the previous increase in the confidence index was mainly due to political factors and the impact of the stock market rise, especially after Democratic presidential candidate Joe Biden performed poorly in the debate with Republican candidate Donald Trump.

However, economists had predicted a reversal in the confidence index after Biden withdrew from the race and Vice President Kamala Harris took over. The intense competition between Trump and Harris, as well as the lackluster performance of the stock market, seems to have affected the confidence of small business owners.

It is worth noting that although concerns about inflation still exist among business owners, these concerns have eased somewhat, and the number of companies raising average selling prices has also decreased. As the inflation rate trends down towards the Federal Reserve's target, the Fed is shifting its policy focus to the labor market and preparing for rate cuts. The impact of inflation data on the US stock market has weakened, and market attention has shifted to the weakness in the labor market and whether the Fed can avoid an economic hard landing.

Eric Diton, President and CEO of Wealth Alliance, said, "The key for stock market investors is whether the Fed waits too long to cut rates, as the current recession risk is higher than two months ago. Suddenly, inflation is no longer the main issue."

Furthermore, despite a slight decrease in national job opportunities, labor shortages remain a challenge for small businesses, leading to an increase in the proportion of business owners planning to raise wages in the next three months.

In August, 40% of business owners reported unfilled job vacancies, an increase of 2 percentage points from July. Most of the vacancies are for skilled workers, mainly in the transportation, construction, and manufacturing industries. However, plans to create jobs continue to decline, consistent with the trend of slowing growth in non-farm employment.

At the same time, the proportion of business owners planning capital investments has increased, with many purchasing new equipment and improving or expanding facilities. Only a few have indicated that financing is their biggest operational issue.

Currently, the market expects the Fed to cut rates next week, starting a loose cycle with a 25 basis point cut. The Fed has kept its policy rate in the range of 5.25%-5.50% for over a year and raised it by 525 basis points in 2022 and 2023 respectively