Small Business Optimism Remains Near Record Levels

Optimism among small business owners remains near record levels, according to the Small Business Optimism Index, which fell 0.5 points in October to 107.4 points, slightly below the Econoday consensus but off just 1.4 points from the 45-year record high set in August. Weakening most compared to the previous month was the view that now is a good time to expand, which fell 3 points to a still very strong net 30 percent, and earnings trends, which were down 2 points to a net minus 3 percent.

Smaller declines of the optimism components in the index were also seen in plans to increase employment, down 1 point to a net 22 percent, expectations of higher retail sales, down 1 point to a net 28 percent, and the net of business owners judging current inventories to be too low fell 1 point to minus 2 percent.

Plans to increase inventories was the only component posting an increase in October, rising 2 points to a net 5 percent, but while remaining unchanged from the previous month, plans to make capital outlays (net 30 percent), expectations that the economy will improve (net 33 percent) and current job openings (net 38 percent) could hardly be more optimistic.

Along with glowing business optimism, the NFIB October survey also showed inflation heating up, with the net percent of owners raising selling prices up 1 point in October to 16 percent while the net planning to raise prices was up 4 points to 27 percent. Companies remain under pressure to raise prices partly as a result of higher worker compensation, as a net 34 percent reported raising compensation, and a net 23 percent have plans to raise it. The survey results should thus reinforce the Federal Reserve's resolve to continue in its current policy of gradual increases in the Fed funds rate.