U.S. Small Business Optimism Eases Again

The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index slipped to 107.4 during October, down for the second straight month and from August's record high of 108.8. The index level remained  3.5% higher than one year ago.

Potential pricing power intensified. Twenty-eight percent firms were planning to raise prices, a ten-year high. Current pricing pressure remains fairly stable. A net 16% of firms were raising average selling prices, below the 19% May high.

A lessened 30% suggested that now was a good time to expand the business, though up y/y. Twenty-eight percent of respondents expected higher real sales versus 29% in September and 21% a year earlier. A still firm 33% expected the economy to improve. The number of respondents who planned to make capital outlays was stable m/m at 30%, but up y/y.

Labor market readings eased. Twenty-two percent of respondents planned to increase employment, down from the record 26% in August. A stable 53% indicated that there were few or no qualified candidates for job openings.

Pressure to raise worker compensation eased slightly m/m, though it remained strong y/y. A lessened 34% of firms increased labor compensation last month. Also, a near record 23% of businesses were planning to raise compensation.

Credit remained readily available as just four percent of businesses reported difficulties in obtaining credit. That remained near the lowest level of the economic expansion.

This survey inquires about problems facing small business. The most pressing problem in October was the quality of labor. Twenty-three percent reported problems versus 18% during all of last year. Sixteen percent indicated that taxes were the largest problem, down from a December 2014 high of 27%. Government requirements were worrisome to a stable 14% of respondents, below the 22% in 2015. Competition from large businesses eased to nine percent as the biggest problem, down from 11% in March. A greatly increased nine percent of firms reported the cost of labor as the most significant problem. That equaled the record high. Insurance costs/availability worried a slightly lessened 9%. Poor sales remained near the record low at seven percent. Financial & interest rate problems worried a lessened two percent of respondents. A slightly lower two percent reported inflation as the biggest problem.

Roughly 24 million small businesses exist in the U.S. and they create 80% of all new jobs. The index is based 1986=100. The typical NFIB member employs 10 people and reports gross sales of about $500,000 a year.

The NFIB figures can be found in Haver's SURVEYS database.