U.S. NFIB Small Business Optimism Index (October 2023)

NFIB Small Business Optimism Index Declines Further in October

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• NFIB's Small Business Optimism Index fell 0.1 point to 90.7 in October, coming in slightly above market expectations for a larger decline to 90.5. October's reading marks the 22nd consecutive month below the 50-year historical average of 98.

• Two of the ten subcomponents pulled back on the month, five improved and three remained unchanged. A sizable decline was recorded for firms earnings trends, with reports of positive profits down eight points to a net negative 32% relative to September.

• The labor market data was relatively stable. The net share of businesses planning to increase employment reversed last month's gain, falling one point to 17%, while the share of firms with unfilled job openings remained unchanged at 43%. Quality of labor concerns also remained unchanged, with 23% of business owners identifying this as their top business problem. Inflation concerns declined only marginally by one point to 22%.

• The share of firms increasing compensation continued to hold steady at 36% for the third consecutive month, even as the number of firms planning to raise compensation advanced 1 point to 24%. The share of businesses 'raising' average selling prices increased one point to 30% (up five points from the cyclical trough in July), while the share of firms 'planning’ to raise average selling prices rose three points to 33% after holding steady at 30% for the previous two consecutive months.

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• Though on the historically lower side, small business confidence has remained relatively stable over the last 17 months, staying within a range of 89.0 to 92.1. October however marks the third consecutive monthly decline and points to the deteriorating mood among American small businesses. Despite labor market metrics not moving much in October, they remain at historically elevated levels and continue to pose pressures for small businesses despite the cooling observed in October's payrolls report.

• Given that the number of firms raising, or planning to raise, compensation is still relatively high, and the share of firms passing on higher prices to consumers is as well, upside pressures to inflation remain. To the extent that this results in higher actual prices, it suggests that the Fed may have more to do to keep inflation contained and bring it back to target.