Small business owners are finding it a bit easier to hire than they did over the summer, but the labor market remains stubbornly tight. That's the takeaway from the latest employment survey from the National Federation of Independent Business (NFIB), a trade group that tracks the mood of small companies across the U.S.
The survey, released Thursday, found that 32% of owners still couldn't fill open positions in September. That's down from recent months, but it's still a high number by historical standards. At the same time, fewer owners said they felt the need to raise pay just to land workers—a sign that wage pressure may be cooling.
What the numbers show
The NFIB's Small Business Employment Index slipped to 100.6 in September from 101.8 in August. That dip hints that hiring momentum is slowing, even though conditions remain slightly tighter than what the group considers "normal."
Only 51% of owners said they were hiring or trying to hire in September, down from 56% the month before. But among those who were looking, the talent shortage is still front and center: 87% reported few or no qualified applicants for the positions they were trying to fill.
That combination—fewer businesses hiring, but those that are still struggling to find workers—paints a picture of a labor market that's gradually loosening, not collapsing.
Why this matters for the broader economy
Small businesses are often seen as a bellwether for the wider job market. They employ nearly half of all private-sector workers in the U.S., so their hiring decisions ripple through the economy. When small firms pull back on hiring, it can be an early sign that the overall job market is cooling.
The NFIB data comes on the heels of other employment reports that have shown a mixed picture. For instance, ADP data showed US private hiring picked up in September, suggesting that larger companies may still be adding jobs at a decent clip. But small businesses, which often have thinner margins and less flexibility, may be feeling the pinch of higher interest rates and slower consumer demand.
The Federal Reserve has been watching the labor market closely as it decides on interest rate policy. If hiring continues to ease, it could give the central bank more room to cut rates, which would lower borrowing costs for businesses and consumers alike. But if the job market stays too tight, it could keep upward pressure on wages and prices, complicating the Fed's fight against inflation.
What it means for investors
For everyday investors, this survey is a useful temperature check on the health of the U.S. economy. A cooling but still-solid labor market is often seen as a "soft landing" scenario—where inflation comes down without a sharp rise in unemployment. That's generally good for stocks, because it means corporate earnings are less likely to take a big hit.
However, the fact that many small businesses still can't find workers suggests that labor costs remain a challenge. If wage pressures persist, some companies may have to raise prices to protect their margins, which could keep inflation elevated. That's something to watch in the coming months.
Investors should also keep an eye on how the Fed reacts. If hiring continues to ease, the central bank might feel more confident about cutting rates, which tends to boost stock valuations, especially for growth-oriented companies. On the other hand, if the labor market tightens again, the Fed could hold rates higher for longer, which can weigh on stocks.
For those with money in small-cap stocks or funds that track them, the NFIB survey is particularly relevant. Small businesses are a key driver of the U.S. economy, and their hiring plans often reflect their confidence in future growth. A slowdown in hiring could signal that small-cap earnings may come under pressure, while a pickup would be a positive sign.
The bottom line
The NFIB survey suggests that the labor market is slowly returning to a more balanced state, but it's not there yet. Small business owners are still struggling to fill roles, and many are still having to offer higher pay to attract workers. That's a sign that the job market remains competitive, even as the overall pace of hiring cools.
For investors, the key takeaway is that the economy is in a transitional phase. The data points to a gradual easing of labor market pressures, which could be good news for inflation and interest rates. But it's too early to declare victory. The next few months of employment data will be crucial in determining whether the trend continues.
