October Small Business Optimism Slightly Below Expectations, but Still Strong

The National Federation of Independent Business (NFIB) Tuesday morning reported that its small business optimism index was unchanged month over month in October at 104.0. The index reading remains historically high and is just 0.3 points lower than the index score posted in January 2020 and 32 points above the index score in June. The consensus estimate from economists had called for the October index to increase to 104.8.

The percentage of business owners who now expect the economy to improve in the next few months dipped by five percentage points to 27% in October following an eight-point gain in September and a dip of one point in August. The earnings trend rose by nine points from a net −12% to a net −3% of business owners reporting quarter-over-quarter profits.

Some 23% of small business owners reported raising employees’ pay in the past three months. That is unchanged on a seasonally adjusted basis compared with September. The percentage of firms planning to raise net compensation rose by two index points to 18%.

The NFIB noted that the job creation component fell by five points month over month to 18% and the job openings component fell by three points to 33%.

NFIB Chief Economist Bill Dunkelberg commented in the jobs report:

Momentum going into the 4th quarter is quite strong. The inventory build alone could add several percentage points to the growth rate. The Federal Reserve is on board with monetary stimulus. Even if a stimulus package is passed after the election, it is unlikely to have a major impact on the 4th quarter results, most likely impacting in the 1st quarter of 2021. Consumer spending will be the main workhorse for the rest of this year.

Some 33% of business owners reported job openings they couldn’t fill, down by three points month over month. Nearly half (48%) of business owners who reported hiring or trying to hire workers last month turned up few or no qualified applicants for the available jobs. Net change to employment over the past three months is down 2%.

Last week’s report on the employment situation showed that nonfarm payrolls increased by 638,000 in October and that the official unemployment rate fell to 6.9%. Although the numbers were positive, hardly anyone paid much attention given the focus on election results.

Job cuts announced in October totaled more than 88,000, a sharp drop from the 119,000 cuts reported in September. For the year to date, more than 2.16 million job cuts have been announced, more than triple the 592,556 jobs lost in all of 2019.

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