Small Business Optimism Continues to Beat Expectations

Uncertainty Declines, Though Historically High Ahead of Election

The National Federation of Independent Business (NFIB) Small Business Optimism Index gained 0.6 to 102.4 in October, slightly beating the consensus forecast. While the Uncertainty Index fell 4 points on fewer recession concerns, it remains historically high heading into an election year.

Forecasts ranged from a low of 100.5 to a high of 102.5. The consensus forecast was 102.0.

“A continued focus on a recession by policymakers, talking heads, and the media clearly caused some consternation among small businesses in previous months, but after shifting their focus to other topics, it’s become clear that owners are not experiencing the predicted turmoil,” said NFIB President and CEO Juanita D. Duggan.

“Small business owners are continuing to create jobs, raise wages, and grow their businesses, thanks to tax cuts and deregulation, and nothing is stopping them except for finding qualified workers.”

Fifty-nine percent (59%) reported capital outlays, a gain of 2 points from September. Of those making expenditures, 40% reported spending on new equipment (+2), 24% acquired vehicles (+1), and 18% improved or expanded facilities (+ 4).

Seven percent (70%) bought new buildings or land for expansion and 14% spent money for new fixtures and furniture, both unchanged.

The skills gap — or, “finding qualified labor” — continues to be the top concern and is helping to fuel higher compensation for workers.

“Labor shortages are impacting investment adversely – a new truck, or tractor, or crane is of no value if operators cannot be hired to operate them,” said NFIB Chief Economist William Dunkelberg. “The economy will likely remain steady at its current level of activity for the next 12 months as Congress will be focused on other matters, and an election cycle will limit action.”

“Any significant change in trade issues will impact financial markets more than the real economy during this period. Adjustments to a new set of ‘prices,’ such as tariffs, will take time.”

A net 30% of all firms reported higher worker compensation, an increase of 1 point to a historically high reading. Plans to raise compensation rose 4 points to a net 22%. Further, small business owners are still not passing on higher compensation costs to consumers. Only 10% reported higher selling prices.

“The economy is doing well given the labor constraints it faces. Unemployment is very low, incomes are rising, and inflation is low. That’s a good economy,” Dunkelberg concluded.