The small business optimism index reflects overall little change in conditions in October from September with the reading hovering at levels that suggest only narrowly positive confidence. The NFIB small business optimism index in October is down slightly to 98.2 in October from 98.8 in September. The October index essentially matches the consensus of 98.3 in the Econoday survey of forecasters. The index remains above the 52-year average of 98 for the seventh month in a row but moving lower for a second month. The uncertainty index is down 12 points to 88 in October, the lowest since 86 in December 2024. If survey respondents are less uncertain about the outlook, they remain uneasy.

Most components show normal month-to-month changes of 1 to 3 points. In October, four components are higher, five are lower, and one is unchanged. The largest increase is 4 points in credit conditions to minus 3 percent which is probably due to anticipation of lower rates. The largest decrease is 9 points in the earnings trend to minus 25 percent, possibly from narrowing in profit margins.

Among survey respondents, 27 percent said that the quality of labor was their single most important problem in October, a jump from 18 percent in September and the highest since 28 percent in August and September of 2021. Small businesses are facing difficulties in finding workers that are the right fit for their open job slots.

The index is expected to continue eroding to 98.3 in October from a soft 98.8 in September, 100.8 in August and 100.3 in July.

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.