NFIB Small Business Survey: Index Inches Up In October

The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for October came in at 103.8, up 0.8 from the previous month. The index is at the 93rd percentile in this series. Today's number came in below the Investing.com forecast of 104.2.

Here is an excerpt from the opening summary of the news release.

More small business owners last month said they expect higher sales and think that now is a good time to expand, according to the October NFIB Index of Small Business Optimism, released today.

“Owners became much more positive about the economic environment last month, which suggests a longer-run view,” said NFIB Chief Economist Bill Dunkelberg. “In the nearer term, they are more optimistic about real sales growth and improved business conditions through the end of the year.”

The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example, the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings following the Great Recession that ended in June 2009.

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Here is a closer look at the indicator since the turn of the century. We are now just below the post-recession interim high.

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The average monthly change in this indicator is 1.3 points. To smooth out the noise of volatility, here is a 3-month moving average of the Optimism Index along with the monthly values, shown as dots.

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Here are some excerpts from the report.

Labor Markets

Job creation strengthened in the small-business sector as business owners reported a seasonally adjusted average employment change per firm of 0.17 workers. Fourteen percent (up 2 points) reported increasing employment an average of 3.5 workers per firm and 11 percent (down 2 points) reported reducing employment an average of 2.2 workers per firm (seasonally adjusted).

Inflation

How effective has the Fed's monetary policy been in lifting inflation to it two percent target rate?

The net percent of owners raising average selling prices rose 2 points to a net 8 percent. Clearly, inflation is not “breaking out” across the country as the Federal Reserve hoped.

Credit Markets

Has the Fed's zero interest rate policy and quantitative easing had a positive impact on Small Businesses?

Four percent of owners reported that all their borrowing needs were not satisfied, up 2 points and historically low. Twenty-nine percent reported all credit needs met (down 4 points) and 53 percent said they were not interested in a loan, up 2 points.

NFIB Commentary

This month's "Commentary" section includes the following observations and opinions:

The preliminary estimate of third quarter growth came in at 3 percent, but this figure will be revised several times before the “official” figure is reported. It was virtually unchanged from the 3.1 percent growth for the second quarter.

The Federal Reserve will boost rates again in December, by 25 basis points, putting the policy range at 1.25-1.5% for Federal Funds. But that will leave the rate at about half of the level that history would suggest.

Congress has taken its first cut at tax reform and small business owners are eagerly waiting to see how the developing legislation will benefit them.

Business Optimism and Consumer Confidence

The next chart is an overlay of the Business Optimism Index and the Conference Board Consumer Confidence Index. The consumer measure is the more volatile of the two, so it is plotted on a separate axis to give a better comparison of the two series from the common baseline of 100.

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These two measures of mood have been highly correlated since the early days of the Great Recession. The two diverged after their previous interim peaks, but have recently resumed their correlation. A decline in Small Business Sentiment was a long leading indicator for the last two recessions.