Survey says: Small business optimism improves

A monthly measure of optimism among small business owners rose in October, although the latest reading continues to reflect recessionary conditions.

The National Federation of Independent Business (NFIB) reported that its Index of Small Business Optimism gained 2.7 points to climb to 91.7.

The index, based on the results of monthly surveys of small business owners across the country, has advanced three straight months to climb to its highest level since hitting 92.2 in May.

For October, seven of 10 components of the index increased.

The proportion of small business owners responding to the October survey who expect the economy to improve over the next six months jumped 11 points to a net 8 percent. That means more owners believe the economy will strengthen than weaken.

The share of owners who plan to increase staffing over the next three month rose four points to a net 1 percent, climbing out of negative territory. Meanwhile, 10 percent of owners reported unfilled job openings, down a point.

The proportion of owners who anticipate making capital expenditures over the next few months slipped a point to 18 percent.  A net 7 percent of owners said they consider now a good time to expand, up a point.

“The environment for capital spending is still not good,” said William Dunkelberg, chief economist for the NFIB. “Interest rates are low, but the record-long recession has eroded financial strength. More importantly, the prospects that investment spending and/or hiring will somehow increase profits remains weak, even if improving slightly.”

The share of owners reporting higher sales over the past three months advanced four points, but remains at a net negative 13 percent in an indication of weak consumer activity. A net 1 percent of owners expect higher sales over the next three months, up four points.

With the prospects for increased sales still weak, small business owners continue to cut inventories. While 25 percent of owners reported inventory reduction, 10 percent reported gains.

Downward pressure on prices appears to be easing, though, as fewer owners cut prices and more owners raise prices. While 22 percent of owners reported average price reductions, 10 percent reported increases. Seasonally adjusted, a net negative 5 percent of owners reported raising prices in October, the 23rd consecutive month in which the reading has remained negative.

The proportion of owners reporting positive earnings trends rose seven points in October, but remains at a net negative 26 percent.

“The persistence of this imbalance is bad news for the economy since profits are important for the support of capital spending and expanding,” Dunkelberg said.