Small Business Optimism Sinks in October

Of the 10 index components, the NFIB recorded gains in only two. The reading in earnings trends was flat in October, while readings fell in seven components. The largest drop came in expectations for improvement in the U.S. economy, where the change from September was a seven-point decline. On the positive side, plans to increase inventories and current job openings each rose one point.

Only 5% of small businesses now plan to increase hiring, leading the NFIB’s chief economist to say:

Washington paralysis is never good news for the economy, so it was no surprise that while politicians were arguing over whether or not the government should remain fully operational, small-business optimism measures deteriorated. Small employers are not fooled by headlines announcing record high stock market indices; everyday they live the economic realities of overregulation, increased taxes, weak sales and a government without any direction or plan for the future. … The new budget deadline of January 15, 2014 is approaching quickly and Congress continues to wrangle over the disastrous healthcare law and little else. We shouldn’t expect skies to turn blue anytime soon.

The biggest drags on independent businesses, according to the survey, were regulations and red tape (noted by 21% of respondents), taxes (noted by 20%) and poor sales (noted by 17%). Each of those numbers actually improved by a point from September.

Some 57% of small business owners reported making outlays for capital equipment in the past six months. That is up 2% from August and the best showing since January 2008. The number planning to make capital purchases in the next six months fell two points to 23%.

Another promising note was struck in the wages area. On a seasonally adjusted basis, a net 16% of small businesses plan to raise wages in the coming months. That could be due in part to the difficulty some businesses are having in hiring qualified employees. About 40% of business owners seeking to hire new employees reported few or no qualified applicants for their open positions. That often means they have to — and are willing to — pay more to keep the employees they have.