The NFIB Small Business Optimism Index decreased slightly in October by 0.9 points to 98.2. One of the 10 Index components improved, seven declined, and two were unchanged.

“Small business owners are attempting to take advantage of current economic growth but remain pessimistic about business conditions in the near future,” said NFIB Chief Economist Bill Dunkelberg. “One of the biggest problems for small businesses is the lack of workers for unfilled positions and inventory shortages, which will continue to be a problem during the holiday season.”

Key findings include:

- The NFIB Uncertainty Index decreased seven points to 67.
- Small business owners expecting better business conditions over the next six months fell four points to a net negative 37%. This indicator has declined 17 points over the past three months to its lowest level since November 2012.

As reported in NFIB’s monthly jobs report, 49% of owners reported job openings that could not be filled, a decrease of two points from September. A net 44% of owners (seasonally adjusted) reported raising compensation, a 48-year record high reading. A net 32% plan to raise compensation in the next three months.

Fifty-six percent of owners reported capital outlays in the last six months, up three points from September. Of those making expenditures, 40% reported spending on new equipment, 24% acquired vehicles, and 14% improved or expanded facilities. Seven percent acquired new buildings or land for expansion and 12% spent money for new fixtures and furniture. Thirty-one percent of owners plan capital outlays in the next few months, up three points and two points above the 48-year average.

A net negative 4% of all owners reported higher nominal sales in the past three months, down seven points from September. The net percent of owners expecting higher real sales volumes decreased by two points to a net 0%.

The net percent of owners reporting inventory increases decreased three points to a net 0%. Thirty-nine percent of owners report that supply chain disruptions have had a significant impact on their business. Another 29% report a moderate impact and 21% report a mild impact. Only 10% of owners reported no impact from recent supply chain disruptions.

A net 9% of owners viewed current inventory stocks as “too low” in October, down one point from last month and near a record high level. A net 8% of owners plan inventory investment in the coming months.

The net percent of owners raising average selling prices increased seven points to a net 53% (seasonally adjusted). Six percent of owners 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 owners (seasonally adjusted) plan price hikes.

The frequency of reports of positive profit trends decreased three points to a net negative 17%. Among owners reporting lower profits, 31% blamed the rise in the cost of materials, 25% blamed weaker sales, 9% cited labor costs, 9% cited the usual seasonal change, 6% cited lower prices, and 3% cited higher taxes or regulatory costs. For owners reporting higher profits, 56% credited sales volumes, 17% cited usual seasonal change, and 11% cited higher prices.

Two percent of small employers reported that all their borrowing needs were not satisfied. Twenty-three percent reported all credit needs met and 63% said they were not interested in a loan. A net 2% reported their last loan was harder to get than in previous attempts.

The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since the 4th quarter of 1973 and monthly surveys since 1986. Survey respondents are randomly drawn from NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in October 2021.

LABOR MARKETS
Forty-nine percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, down 2 points from September. The number of unfilled job openings remains far above the 48-year historical average of 22 percent. Forty-two percent have openings for skilled workers (down 4 points) and 24 percent have openings for unskilled labor (down 4 points). Fifty-nine percent of the job openings in construction are for skilled workers, down 8 points. Sixty-five percent of construction firms reported few or no qualified applicants (down 15 points). Although it is clear that there is still a “shortage” of workers, the declines hint at an easing of conditions in the labor markets. Overall, 62 percent reported hiring or trying to hire in October, down 5 points from September. Owners’ plans to fill open positions remain at record high levels, with a seasonally adjusted net 26 percent planning to create new jobs in the next three months, unchanged. Up to now, it has become increasingly harder to hire, as shown by the continued increases in job openings, reports of higher wages, and reports of few or no qualified applicants. Finding qualified employees remains a problem. Fifty-eight percent (94 percent of those hiring or trying to hire) of owners reported few or no qualified applicants for the positions they were trying to fill (up 4 points). Thirty-three percent of owners reported few qualified applicants for their open positions (down 1 point) and 25 percent reported none (down 3 points).

CAPITAL SPENDING
Fifty-six percent reported capital outlays in the last six months, up 3 points from September. A recovery in investment will be needed to spark an improvement in productivity, but this is unlikely to occur while owners remain pessimistic about future business conditions. Of those making expenditures, 40 percent reported spending on new equipment (down 3 points), 24 percent acquired vehicles (up 3 points), and 14 percent improved or expanded facilities (up 2 points). Seven percent acquired new buildings or land for expansion (up 1 point) and 12 percent spent money for new fixtures and furniture (up 2 points). Thirty-one percent plan capital outlays in the next few months, up 3 points from September and 2 points above the 48-year average. However, capital spending is still anemic relative to the recent growth in the economy.

INFLATION
The net percent of owners raising average selling prices increased 7 points to a net 53 percent seasonally adjusted. Price raising activity has reached levels not seen since the early 1980s when prices were rising at double digit rates. Unadjusted, 6 percent (down 2 points) reported lower average selling prices and 57 percent (up 4 points) reported higher average prices. Price hikes were most frequent in wholesale (78 percent higher, 4 percent lower), retail (72 percent higher, 4 percent lower), and construction (66 percent higher, 0 percent lower). Seasonally adjusted, a net 51 percent plan price hikes (up 5 points).

COMPENSATION AND EARNINGS
Seasonally adjusted, a net 44 percent reported raising compensation. A net 32 percent plan to raise compensation in the next three months, up 2 points from September’s record high reading. Ten percent cited labor costs as their top business problem (down 2 points) and 24 percent said that labor quality was their top business problem (down 4 points). The frequency of reports of positive profit trends decreased 3 points to a net negative 17 percent. Among owners reporting lower profits, 31 percent blamed the rise in the cost of materials, 25 percent blamed weaker sales, 9 percent cited labor costs, 9 percent cited the usual seasonal change, 6 percent cited lower prices, and 3 percent cited higher taxes or regulatory costs. For owners reporting higher profits, 56 percent credited sales volumes, 17 percent cited usual seasonal change, and 11 percent cited higher prices.

CREDIT MARKETS
Two percent of owners reported that all their borrowing needs were not satisfied (unchanged). Twenty-three percent reported all credit needs met (up 3 points) and 63 percent said they were not interested in a loan (up 1 point). A net 2 percent reported their last loan was harder to get than in previous attempts (down 2 points). One percent reported that financing was their top business problem (up 1 point). A net 2 percent of owners reported paying a higher rate on their most recent loan. The average rate paid on short maturity loans was 5.0 percent, down 0.6 points from September. Twenty-three percent of all owners reported borrowing on a regular basis (up 3 points).

SALES AND INVENTORIES
A net negative 4 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down 7 points from September. The net percent of owners expecting higher real sales volumes decreased by 2 points to a net 0 percent. The net percent of owners reporting inventory increases decreased 3 points to a net 0 percent. Thirty-nine percent of owners report that supply chain disruptions have had a significant impact on their business. Another 29 percent report a moderate impact and 21 percent report a mild impact. Only 10 percent report no impact from recent supply chain disruptions. A net 9 percent of owners viewed current inventory stocks as “too low” in October, down 1 point from September and near a record high level. A net 8 percent of owners plan inventory investment in the coming months, down 1 point from September.

COMMENTARY
The economy grew at a disappointing 2 percent rate in the third quarter, due mostly to a weakening of consumer spending. A reduction in government support payments was the major drag, but so were supply chain issues and labor shortages. New car spending collapsed over 20 percent as dealers’ inventories shrunk due to production and distribution problems. A large share of the new homes sold have not been built yet due in part by labor shortages. With housing in short supply across much of the country, home prices have also advanced 20 percent. So, reduced government support, higher prices, and slowing job creation delivered a soft quarterly performance. Adding to the muddle, Washington is having trouble putting its economic policies in place. Spending and tax policies are still up in the air, while debt ceiling problems loom larger each day. The Federal Reserve is also scrambling to reset policies to deal with growth and inflation numbers that it had not expected. Small businesses are hanging on, trying to take advantage of current economic growth while remaining pessimistic about the course of business conditions in the near future. Not knowing the course of federal economic policies (e.g., taxes) makes it harder to make the investment expenditures that will be needed to raise worker productivity. Add to that the unclear course of the virus and associated government policies and owners face an economy filled with uncertainty that must be resolved to figure out the likely course of the economy.