Small Business Sentiment Eases but Holds Above Long-Term Average

U.S. small business confidence slipped slightly in October. Owners reported lower sales and profits, while labor shortages and cost pressures continued to weigh on operations.

The National Federation of Independent Business (NFIB) Small Business Optimism Index fell 0.6 points to 98.2, but it stayed above its 52-year average of 98. The NFIB Uncertainty Index dropped 12 points to 88, the lowest reading this year. That suggests owners may feel a bit more certain about what lies ahead.

NFIB Chief Economist Bill Dunkelberg said optimism declined as owners faced weaker sales and reduced profits. Labor quality remains the biggest challenge for Main Street employers.

Labor Remains a Key Constraint

Hiring stayed tight in October. About one-third of small business owners said they had open jobs they couldn’t fill, the same as in September. Among those trying to hire, 88% said there were few or no qualified applicants.

Labor quality jumped nine points as the top issue for small businesses, cited by 27% of owners—the highest since late 2021. Labor costs came next, mentioned by 8%.

A net 15% of businesses plan to add jobs in the next three months, down one point from September. Twenty-six percent raised pay, and 19% expect to do so soon.

Profit Trends and Sales Soften

Profits fell in October, pulling down overall optimism. The share of owners reporting higher profits dropped nine points to a net negative 25%.

About one-third blamed lower sales, while others pointed to rising material and labor costs.

Sales performance also weakened. A net negative 13% reported stronger sales over the past three months, down six points from September. Expectations for sales in the coming quarter slipped two points to a net reading of 6%.

When asked about business health, 12% said conditions were excellent, 51% said good, and 33% said fair. Only 4% called them poor—unchanged from last month.

Inflation and Price Dynamics

Price pressures eased slightly in October. The share of owners raising prices fell three points to a net 21%. Plans for future price increases edged lower to 30%.

While both figures remain above the long-term average of 13%, they show gradual relief from inflation.

Twelve percent of owners said inflation was their biggest problem, down two points from the month before. Combined with softer profits and slower sales, these results suggest demand is cooling even as costs remain high.

Supply chain issues also continued to fade. Sixty percent of owners said they were affected by disruptions, down four points from September and the lowest in two years.

Investment and Credit Conditions

Capital spending slowed slightly. Fifty-five percent of owners made capital outlays in the past six months, down one point from September. Most invested in new equipment (36%), vehicles (22%), or facility improvements (14%).

Plans for future investment ticked up two points to 23%, hinting at cautious confidence.

Financing conditions improved a bit. Only 5% said their latest loan was harder to get, down from 7% in September. Just 1% reported higher interest rates, and the average rate on short-term loans slipped to 8.7%. Borrowing activity remained moderate, with 23% of owners saying they borrow regularly.

Inventories and Business Outlook

Inventory levels stayed tight as firms adjusted to changing demand. A net negative 6% of owners said inventories increased, down three points from September. Ten percent boosted stocks, while 15% reduced them. Only 2% plan to build inventories soon, showing caution heading into the holiday season.

Expectations for better business conditions dipped three points to a net 20%, the lowest since April but still well above the long-term average of 4%. Thirteen percent said it’s a good time to expand, up two points but still low for a growth period.

Key Takeaways for Investors

• Small business confidence remains stable even as profits soften.
• Hiring is still tight, but job creation plans continue.
• Price and inflation pressures are easing, bringing some cost relief.
• Capital spending and credit conditions are holding steady.
• Lower uncertainty may signal steadier expectations going into 2026.

Overall, Main Street appears to be cooling but stable. Small business owners still face cost and hiring challenges, but the mood suggests adjustment—not contraction.

If you would like to discuss how these trends may affect your financial plan or investment strategy, our team is here to help. We can walk through your portfolio, review your planning assumptions, and connect this data to your long-term goals. Please reach out to schedule a conversation or bring these topics to your next meeting with us.

Source: nfib.com

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