The NFIB unveiled its latest look at small business sentiment early this morning. The headline number remains in the bottom decile of its historical range, falling 0.1 points to 90.6 in November. That is compared to expectations which called for the number to be unchanged last month.

Across the categories factoring into the index, breadth was mixed in November with four categories falling, four rising, and one unchanged. Like the headline number, many categories are also in the bottom few percentiles of their respective historical ranges, albeit with some exceptions like robust readings in plans to increase employment, current inventories, and job openings hard to fill.

As we discussed in our Morning Lineup, combining the report's readings on employment shows some rebounding conditions for labor markets over the past few months. Looking more closely, though, it is hard to say labor market conditions are materially accelerating. As shown, hiring plans have risen, but on net more companies are reporting negative employment changes. In a similar vein, compensation plans have risen sharply including a six-point jump month over month in November (the largest one month increase since last October and the third largest on record), even though actual changes to compensation have been flat. Meanwhile, fewer businesses are reporting job openings are hard to fill. Small businesses are showing labor conditions have cooled over the past couple of years but are far from weak as any more recent improvements have been from plans rather than observed changes.

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Similarly, sales expectations rebounded in November, contrary to a flat reading on actual sales and earnings changes. Perhaps most importantly, the share of businesses reporting higher prices has fallen down to 25, matching the July low. In combination with the higher reading on sales expectations, that likely helped the number of firms reporting now as a good time to expand.

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Looking at the reverse, of those reporting now as not a good time to expand, the single biggest reason given for such sentiment was economic conditions. That is typically the most widely cited reason historically followed by political climate (the NFIB has a tendency to be sensitive to politics, namely which party holds the presidency), but for the first time in at least a decade, financial conditions and interest rates earned the number two spot. As shown below, the number of firms reporting that rates are holding them back from expanding has risen steadily since the current tightening cycle began.

As mentioned previously, actual earnings changes saw no improvement in November and are sitting near historically weak levels.As for the reasons given for lower earnings, increased costs remain a key reason, but November also saw a significant jump in those reporting sales volumes as a problem.In other words, inflation and weaker demand appear to be weighing on small business earnings.

Despite the burden of interest rates and expectations for credit conditions sitting at the lowest levels in over a decade, small businesses have actually increased capital expenditures dramatically to a new post-pandemic high. However, that is counter to capital expenditure plans, which have fallen in the past few months, and inventories showing drawdowns.

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