The NFIB small business optimism index is essentially unchanged at 90.7 in October after 90.8 in September. The reading is in line with the consensus of 90.5 in the Econoday survey of forecasters. The NFIB index has been below its long-term average of 98 for the 22nd month in a row. Survey respondents continue to face an uncertain outlook for the economy, worries about inflation, and difficulties in getting the right candidate to fill open jobs.

There is a modest improvement in the October uncertainty index which is down to 76 after 79 in September. However, it is above 72 in October 2022 and remains elevated in the historical context. Small businesses see an unstable geopolitical situation, harsh domestic political climate, slowly improving inflation, and a labor market that favors job seekers. Among survey respondents, 23 percent said their single most important problem is the quality of labor and 22 percent said it is inflation.

In October, 5 of 10 index components are up, 2 are down, and 3 are unchanged. One big decline is nearly offset by a series of small increases. The largest negative is an 8-point drop in the earnings trend to minus 32 percent, its lowest since minus 33 percent in August 2022. The largest positive is a 3-point increase to minus 10 percent in expectations for higher sales to its highest since minus 9 percent in February 2023. The remaining component increases are 1 point in plans to increase inventories, current inventories, credit conditions, and now is a good time to expand.

With nearly 50 years of data, the small business optimism index has been below the historical average of 98 for 21 months in a row. October's consensus is 90.5 versus 90.8 in September.

The small business optimism index is compiled from a survey that is conducted each month by the National Federation of Independent Business (NFIB) of its members. The index is a composite of 10 seasonally adjusted components based on the following questions: plans to increase employment, plans to make capital outlays, plans to increase inventories, expect economy to improve, expect real sales higher, current inventory, current job openings, expected credit conditions, now a good time to expand, and earnings trend.

Small businesses are responsible for a majority of new job creation and the NFIB focuses on this sector of the economy. The direction of the health of small businesses can portend changes in the stock market - especially small caps.