WASHINGTON (Reuters) -U.S. small-business sentiment declined in September amid expectations of unfavorable operating conditions in the next six months, and many owners reported raising prices or planning to, suggesting that inflation was poised to increase further.

The National Federation of Independent Business said on Tuesday its Small Business Optimism Index dropped 2.0 points to 98.8 last month. It was the first decline in three months.

A lapse in government funding amid a political standoff between Republicans and Democrats in Washington has halted the collection and publishing of official economic data, leaving investors and policymakers relying on private surveys to assess the economy's health. 

The shutdown, which enters its third week on Wednesday, has delayed the release of the closely watched employment report for September. But September's consumer price data will be published next Friday to assist the Social Security Administration with its annual cost-of-living adjustment for 2026 for millions of retirees and other benefits recipients.

The NFIB said the survey's Uncertainty Index jumped 7 points from August to 100, the fourth-highest reading in over 51 years.

"Uncertainty is very high, the (Trump) administration has a lot of policy changes still in the air, lots of moving parts," said NFIB Chief Economist Bill Dunkelberg. "Growth in the economy is solid though driven perhaps more by AI-related investments than by spending that impacts Main Street firms."

TARIFFS ARE RAISING COSTS FOR BUSINESSES

The share of owners expecting better business conditions over the next six months plunged 11 points to 23%. 

Commentary from survey respondents included complaints about higher beef prices, health insurance and taxes as well as potential clients "choosing to delay or forgo repairs or improvements due to lack of confidence in the overall economy." 

Fourteen percent of owners said inflation was their single most important problem in operating their business because of higher input costs, up three points from August. 

The share raising average selling prices increased three points to 24%, with the NFIB noting that "price increases remain above the monthly average of a net 13%." There was also a rise in the proportion complaining about supply chain disruptions affecting their businesses.

The price increases and supply chain disruptions are likely because of President Donald Trump's sweeping tariffs on imports. Trump last Friday threatened 100% duties on Chinese imports. 

About 31% of owners planned to raise prices in the next three months, up five points from August. More businesses reported declining sales. The share expecting higher inflation-adjusted sales dropped four points. As a result, unsold merchandise is piling up, a worrying sign for the economy.

"Solid consumption spending appears to be from the top third of the income distribution and the stock market keeps setting new record highs, producing capital gains income for shareholders," said Dunkelberg.