U.S. NFIB Small Business Optimism Index (October 2022)

Admir Kolaj, Economist | 416-944-6318

Date Published: November 8, 2022

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Small Business Confidence pulls back in October

  • The NFIB's small business optimism index fell 0.8 points to 91.3 in October. The headline print came in below the market consensus forecast, which called for it to hold flat from the month prior. October marked the tenth consecutive month that the index was below its long-term historical average. 
  • Looking beneath the headline, seven of the ten subcomponents fell on the month, two improved and one remained unchanged. Expectations regarding higher real sales (-3 points to -13%) and expectations about an improvement in the economy (-2 points to -46%), along with the belief that now is a good time to expand (down one point to 5%) all pulled back on the month and remain at some of their lowest levels in decades. 
  • Labor market indicators were mixed. The share of businesses planning to increase employment fell 3 points to 20%. Meanwhile, job openings held flat at 46% – a few points below the pandemic peak, but still much higher than at any point in the five decades preceding the health crisis. Quality of labor concerns ticked up one point, with 23% of business owners identifying this as their top business problem – second only to inflation (+3 points to 33%). 
  • Concerns regarding labor costs held flat at 10% for the third straight month – a historically high reading. The share of firms increasing compensation eased one point to 44%, but those planning to increase worker compensation shot up 9 points – matching the all-time high of 32%. Similarly, the share of firms 'planning to raise' prices ticked higher (+3 points to 34%) despite the share 'raising' average selling prices easing in October. 

Key Implications

  • Small businesses confidence remains well below its long-term historical average, with expectations regarding a further improvement in the economy and the belief that now is a good time to expand both subdued. Still, the underlying strength in the labor market indicators remains encouraging. Indeed, job openings and the share of businesses planning to increase employment remain at very healthy levels compared to historical norms.  
  • The sharp increase in the share of firms planning to raise worker compensation and the increase in those planning to raise average selling prices is worthy of a pause. While one month of data does not a trend make, this serves as a reminder that with the labor market tight and demand for labor still elevated, the potential for some re-acceleration in labor costs (which would tend to be passed down to the consumer though higher prices) should not be fully discounted. Thankfully, most of the survey's other inflation-related metrics continue to point a deceleration in price growth ahead.