Despite record-high uncertainty, the NFIB small business optimism index rose 2.2 points to 93.7 in October to its highest level since 95.7 in February 2022. The reading is well above the consensus of 91.7 in the Econoday survey of forecasters. The uncertainty index rose to 110 in October after 103 in September, a second month in a row of new series peaks. The survey was completed prior to election day. The survey clearly reflects anxiety about the outcome of the presidential election. However, respondents also had some more positive views of the near future.

As the report noted, the November survey should reduce the level of uncertainty. Whether it will also raise small business confidence is not yet clear.

For the October survey, nine of 10 components are higher, none are lower, and one is unchanged. The largest move higher is 7 points in expectations for the economy to improve to minus 5 percent, its highest since a positive 8 percent in November 2020. The next largest move higher in October is 5 points for expectations for higher sales to minus 4 percent, the highest since minus 4 percent in December 2023. On the whole, forward looking components while mostly in negative territory are getting closer to neutral.

In October, 23 percent of survey respondents put inflation as their single most important problem followed by 20 percent naming quality of labor as their single most important problem. While the pace of inflation has come down significantly, small businesses may still be feeling the pinch when it comes to service price escalation and/or their ability to pass through higher costs. Smaller businesses are also at a competitive disadvantage for skilled workers even though labor supply has increased and upward pressure on compensation costs has eased.

Small business sentiment is expected to edge up marginally to 91.7 in October from 91.5 in September, presumably with uncertainty ahead of the election keeping a lid on things. November is likely to see a big bounce, given the favorable reception the Trump victory is getting in business and financial circles.

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.