• The NFIB’s small business optimism index rose 0.6 points to 102.4 in October – slightly better than expectations for a 102.0 reading.
  • The advance was broad-based, with eight of the ten subcomponents improving on the month. Leading the way were plans to increase inventories (+3 points to 5%), current inventory (+2 points to -4%) and plans to make capital outlays (+2 points to 29%). The share of businesses making capital outlays over the last few months also improved 2 points to 59%.
  • Earning trends deteriorated (-5 points to -8%), but, on the other hand, the share of firms that expect higher real sales increased 1 point to 17%.
  • Labor market indicators were mixed. Firms planning to increase employment improved by 1 point to 18%, whereas job openings pulled back by 1 point to 34%. The latter remains elevated relative to historical performance, but has fallen to the lowest level in a year.
  • The share of businesses seeing ‘few or no qualified workers’ for their open positions was up 3 points to 53%, while quality of labor concerns remained top of mind (+2 point to 25%), with both subcomponents near historical highs. Businesses showed willingness to keep boosting compensation in order to attract and retain talent. The share of firms raising worker compensation, which has generally trended down in recent months, rose 1 point to 30% in October, while the share of those ‘planning’ to raise compensation rose by 4 points to 22%.
  • The uncertainty index also showed signs of improvement. While elevated, it fell 4 points to 78.

Key Implications

  • The record high in business optimism seen in mid-2018 is likely in the rear-view mirror, but small businesses generally remain in good spirits, with the confidence measure still at the top of the range of historical highs in October. This is despite a tightening labor market and volatile trade backdrop.
  • A shortage of qualified workers remains the primary concern among small business owners, as evidenced by several labor market indicators in the NFIB survey. That said, small businesses remain open to continue boosting worker compensation in order to attract and retain talent – a sign of underlying resilience.
  • As uncertainty faded a touch in October, measures for actual and planned capital outlays improved, making this one of the most positive aspects of today’s report. While a month does not a trend make, these improvements suggest that a little cooperation on the trade front can go a long way to help sow the seeds for a turnaround in business investment.


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