Small-business optimism in October dropped from 93.9 to 91.6, largely due to a precipitous decline in hiring plans and expectations for future small-business conditions, according to the National Federation of Independent Business. Of the ten index components, seven turned negative, falling a total of 27 percentage points. The stalemate in early October over funding the government as well as the rocky Obamacare website launch may have contributed to 68 percent of owners feeling that the current period is a bad time to expand; 37 percent of those owners identified the political climate in Washington as the culprit – a record high level. 

The average value of the index since the recovery started is 91, which is 8 points below the thirty-five year average through 2007.

A review of the October indicators is as follows: 

Job creation: Job creation was up in October. NFIB owners increased employment by an average of 0.11 workers per firm in October after September’s decline. 
    
Hard-to-fill job openings: Twenty-one percent of all owners reported job openings they could not fill in the current period (up 1 point), and 15 percent reported using temporary workers, up 1 point from September.

Sales: The net percent of all owners reporting higher nominal sales in the past three months compared to the prior three months dropped 2 points to a negative 8 percent. The net percent of owners expecting higher real sales volumes fell 6 points to 2 percent of all owners. 

Earnings and wages: Earnings trends did not improve in October, remaining at a negative 23 percent. Two percent of owners reported reduced worker compensation and 18 percent reported raising compensation, yielding a net 16 percent reporting higher worker compensation (down 1 point). A net 10 percent plan to raise compensation in the coming months, down 3 points.

Credit markets: Credit continues to be a non-issue for small employers, 6 percent of whom say that all their credit needs were not met in October, unchanged from the previous month. Twenty-eight (28) percent of owners surveyed reported all credit needs met, and 53 percent explicitly said they did not want a loan (64 percent including those who did not answer the question, presumably uninterested in borrowing).  

Capital outlays: In October, the frequency of reported capital outlays over the past six months rose 2 points to 57 percent. The percent of owners planning capital outlays in the next three to six months fell 2 points to 23 percent. 

Good time to expand: Only 6 percent of owners characterized the current period as a good time to expand (down 2 points from September). The net percent of owners expecting better business conditions in six months was a net negative 17 percent, 7 points worse than September and 15 points worse than August. 

Inventories: The pace of inventory reduction continued in September, with a net negative 6 percent of all owners reporting growth in inventories, up 1 point from September. For all firms, a net negative 5 percent (a 5 point drop) reported stocks too low, the lowest reading since 2011. Plans to add to inventories increased 1 point for a net negative 1 percent. 

Inflation: Fourteen percent of the NFIB owners surveyed reported reducing their average selling prices in the past three months (unchanged), and 16 percent reported price increases (up 2 points). The net percent of owners raising average selling prices was 5 percent, up 4 points. As for prospective price increases, a net 18 percent plan price hikes, down 1 point. Twenty percent plan on raising average prices in the next few months (unchanged), and 3 percent plan reductions (up 1 point). 

Today’s report is based on the responses of 1,940 randomly sampled small businesses in NFIB’s membership, surveyed throughout the month of October. Download the complete study at http://www.nfib.com/sbetindex.