U.S. NFIB Small Business Optimism Index Strengthens in October; Uncertainty Soars

The NFIB Small Business Optimism Index increased to 93.7 during October after edging higher to 91.5 in September and falling sharply to 91.2 in August, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. The index rose 3.3% y/y, and nine of the 10 index components improved last month. The NFIB Small Business Uncertainty Index surged to a record 110 (+44.7% y/y) in October. It stood higher than its recent low of 65 in November 2023.

The outlook for business conditions improved in the latest survey. The net balance of respondents expecting the economy to improve rose to -5% in October from -12% in June and remained higher than a record-low of -61% in June 2022. Expected real sales rose to a net -4% in October, a ten-month high. The latest reading has increased from a low of -29% in July 2022. A higher 6% of respondents indicated that now was a good time to expand the business, the most since January.

Plans to make capital outlays increased to 22% of firms after falling to 19% in September. This reading has increased from its recent low of 20% in March but remained below a high of 31% in October 2021. Plans to expand the business rose to 6% in October after two months at 4%. The index of expected credit conditions improved to -6% in October, after two consecutive months at -8, and matched its February high.

On the labor front, a greatly lessened 46% of businesses reported few or no qualified workers to fill job openings in October, after surging to 56% two months earlier. These readings were below a high of 61% in May 2022. A steady net 15% planned to increase employment in October, below the most recent high of 18% in November of last year and a peak of 32% in August 2021.

Overall earnings trends continued to improve last month, after rising sharply in August. The figure rose to -33% from -34% in September.

On the pricing front, the net percent raising their average selling prices eased to 21% last month, down from 22% in September, and remained significantly below a high of 66% in March of 2022. The percentage planning to raise prices edged higher to 26% in October from 25% in the prior month.

Wage inflation weakened as a net 31% of respondents raised compensation during the last three months versus 32% in the September survey and below the 38% reported in the June survey. Compensation peaked at 50% of firms in January 2022. A steady net 23% of firms planned to raise worker compensation in the next three months, up from an 18% low in July.

Inflation continued to be the single most important issue facing small businesses, as reported by 23% of NFIB members in October. The quality of labor was the second most important concern as reported by 20% of members. Other major concerns were taxes, 16%, the cost of labor, 8%, and government requirements, reported by 8% of NFIB members.

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s SURVEYS database.