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Economy in Brief

U.S. Small Business Optimism Index Decreased in October
by Kathleen Stephansen, CBE  November 9, 2021

• Small Business Optimism Decreases in October.

• Seven of the 10 index components declined, only one rose and two were unchanged.

• Lack of qualified workers and supply-chain bottlenecks remain major impediments.

The Small Business Optimism Index declined to 98.2 in October from 99.1 in September, matching the lowest reading since March, according to the National Federation of Independent Business. Only one of the index's 10 components increased, seven declined and two held steady. The NFIB Uncertainty Index dropped to 67 from the rebound to 74 seen in September, the lowest level since January 2016.

The net balance of respondents expecting the economy to improve over the next six months dropped to -37% in October from -33% in September, the lowest level since November 2012. This was the fourth consecutive monthly decline. Fifty-six percent reported making capital outlays in the past six months, up from 53% in September. Thirty-one percent expect to make a capital outlay in the next three to six months.

Forty-nine percent of respondents reported job openings that could not be filled. A net 44% reported raising compensation over the past three months, a record high. A net 32% plan to raise compensation in the next three months, up 2%-point from September's record high reading. Ten percent cited labor costs as their top business problem and 24% said that labor quality was their major problem, down from 28% in September.

Thirty-nine percent of respondents reported that supply chain disruptions have had a significant impact on their business. Another 29% reported a moderate impact and 21% report a mild impact. Only 10% of respondents reported no impact from recent supply chain disruptions. A net 9% viewed current inventory stocks as "too low" in October, down 1%-point from September.

Inflation pressures remain elevated. The net percent of respondents raising average selling prices increased 7%-points to a net 53% (seasonally adjusted). Unadjusted, 6% of respondents reported lower average selling prices and 57% reported higher average prices. Price hikes were the most frequent in wholesale (78% higher, 4% lower), retail (72% higher, 4% lower) and construction (66% higher, 0% lower). A net 51% of respondents (seasonally adjusted) plan price hikes.

Roughly 24 million small businesses exist in the U.S. and they create 80% of all new jobs. The typical NFIB member employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver's SURVEYS database.

National Federation of Independent Business (SA, Net % of Firms) Oct Sep Aug Oct '20 2020 2019 2018
Small Business Optimism Index (1986=100) 98.2 99.1 100.1 104.0 99.6 103.0 106.7
Firms Expecting Economy to Improve -37 -33 -28 27 20 13 32
Firms Expecting Higher Real Sales 0 2 -2 11 1 18 26
Firms Reporting Now Is a Good Time to Expand the Business 10 11 11 13 13 25 30
Firms Planning to Increase Employment 26 26 32 18 16 19 21
Firms With Few or No Qualified Applicants for Job Openings (%) 58 62 60 48 46 52 51
Earnings Trends -17 -14 -15 -3 -16 -5 -2
Firms Reporting that Credit Was Harder to Get 2 4 3 3 3 4 4
Firms Raising Average Selling Prices 53 46 49 15 5 13 15
Firms Raising Worker Compensation 44 42 41 23 23 31 33
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