The small business optimism index rose 0.8 points in October to 103.8, bouncing back, though less than expected, from a 2.3 point decline in September that took the index to the lowest level of the year as optimism retreated from 12-year highs set earlier in the year. Higher real sales expectations and the view that now is a good time to expand appropriately led the recovery in October having weakened the most in the prior month, rising 6 points each, respectively, to 21 and 23.
Of the ten components making up the index, 4 rose, 5 showed small declines and 1 remained unchanged. Current job openings rose 5 points to 35, the highest reading among the optimism components as the tight labor market tightens even further amid hiring activity that NFIB said was particularly high at construction firms in Florida and Georgia. General expectations that the economy will improve strengthened by a point to 32, making them the second strongest component, as small business owners remain encouraged by surging consumer sentiment and partly also by expected replacement purchases of cars and other goods lost to hurricanes in Texas and Florida.
Nevertheless, earnings trends stubbornly remained the weakest of the components and became even more pessimistic in October, falling 3 points to minus 14. Small business owners also became even more downcast about expected credit conditions, with a 1 point drop to minus 5. Weakness was also emerging in inventories, with plans to increase inventories shedding 3 points to a still slightly positive reading of 4 while current inventories fell 2 points deeper into pessimistic territory at minus 5.
While falling somewhat short of expectations, the October bounce back shows small business owners retaining the highest level of optimism of the recovery, perhaps best exemplified by the one component that remained unchanged in October, plans to increase capital outlays, at a strongly confident 27.
The small business optimism index is compiled from a survey that is conducted each month by the National Federation of Independent Business (NFIB) of its members. The index is a composite of 10 seasonally adjusted components based on the following questions: plans to increase employment, plans to make capital outlays, plans to increase inventories, expect economy to improve, expect real sales higher, current inventory, current job openings, expected credit conditions, now a good time to expand, and earnings trend.
Why Investors Care