Small Business Optimism Index retreats

William Dunkelberg

A measure of optimism among small business owners has declined even as concerns over labor and inventory shortages mount heading into the holiday shopping season.

The National Federation of Independent Business reported it’s Small Business Optimism Index decreased nine-tenths of a point to 98.2 in October.

“Small business owners are attempting to take advantage of current economic growth, but remain pessimistic about business conditions in the near future,” said Bill Dunkelberg, chief economist of the NFIB. 

“One of the biggest problems for small businesses is the lack of workers for unfilled positions and inventory shortages, which will continue to be a problem during the holiday season,” Dunkelberg said.

The NFIB bases the index on the results of monthly surveys of members, most of them small business owners. For October, seven of 10 components of the index declined, one advanced and two remained unchanged from September.

The proportion of those responding to the survey upon which the October index was based who said they expect the economy to improve in coming months dropped four points. At net negative 37 percent, more respondents expected worsening conditions.
The component has dropped 17 points over the past three months to its lowest level since November 2012.

A net 31 percent of respondents reported plans to increase capital outlays, up three points.  A net 10 percent said they consider now a good time to expand, down a point.

A net 26 percent reported plans to increase staffing, unchanged from September. A net 49 percent reported unfilled job openings, down two points from a record-high reading for the 48-year-old index. Asked to identify their single most important business problem, 24 percent cited labor quality and 10 percent labor costs.

A net 44 percent of respondents said they raised compensation, a record-high proportion. A net 32 percent said they plan to raise compensation in the next three months.

The proportion of those who said they expect more sales dropped two points to net zero.

The share of those reporting higher earnings dropped three points. At a net negative 17 percent, a bigger share reported lower earnings. Among those reporting lower earnings, 31 percent blamed higher material costs and 25 percent cited weaker sales. Among those reporting higher earnings, 56 percent credited stronger sales.

A net 8 percent reported plans to increase inventories, down a point. A net 9 percent said they consider current inventories too low, also down a point.