Small business owner optimism held steady ahead of the election, according to an updated report from the National Federation of Independent Business (NFIB). Specifically, the headline optimism index remained at 104.0 in October, slightly below the consensus forecast but still in line with pre-pandemic levels. Four of the ten main components that make up the sentiment index strengthened in October, including a marked gain in reported earnings trends, while the biggest detractors last month were expectations for the economy to improve and reported plans to boost staff size. Such weak spots, though, were likely more a reflection of the looming unknowns of the election and a potential winter flareup in the coronavirus, as evidenced by the NFIB uncertainty index jumping last month to the highest reading since November 2016.
Further, none of these potential near-term risks appear to have materially hurt small business job creation because total vacancies have already returned to pre-pandemic levels. There was a slight pullback in openings in October but this appeared to be more a side-effect of the uptick in hiring related to rising compensation. Moreover, the largest percentage of surveyed owners since prior to the pandemic reported that they have increased worker pay recently, and a similarly elevated number of respondents said they have plans for additional compensation raises in the coming months. Such actions are not too surprising considering that roughly half of all owners continue to report finding “few or no” qualified applicants to the job openings they are trying to fill. A newer development worth mentioning from this latest NFIB report is that the net percent of surveyed small business owners citing plans to add to their inventories in the months ahead jumped to the highest reading on record in October. This theme of rising inventory investment should play out at larger businesses as well going forward, save the return of any pandemic-related activity restrictions, and in turn be a key driver of the rebound in U.S. gross domestic product (GDP) growth during the next few quarters.
Sources: Econoday, NFIB