U.S. small business sentiment falls slightly in October, confidence measure remains optimistic

The U.S. small business sentiment eased off a bit in October. The NFIB’s small business optimism index dropped half a point to 107.4. The headline print came in slightly below market expectations for a 108-point showing, but was still at the top range of historical highs.

Half of the survey subcomponents dropped between one and three points on the month, while four continued to be unchanged. ‘Plans to increase inventories’ rose 5 percent and was the only subcomponent to rise on the month.

Among the sub-indicators that dropped, the share of companies reporting that ‘now is a good time to expand’ fell three points to 30 percent. In the meantime, the share of companies reporting higher earnings this quarter dropped two points for a second month to a net -3 percent.

There was slight movement amongst the employment subcomponents, which continue to be close to multi-year highs. Plans to raise employment dropped to 22 percent, while the share of businesses recording few or no qualified workers and unfilled job openings remained stable – the latter at an all-time high.

The compensation metrics dropped slightly in October, but also continue to be elevated comparatively to history. The share of companies raising and planning to increase worker compensation partly reversed some of the prior month’s gains, declining three and one point respectively to 34 percent and 23 percent.

Businesses intend to stimulate prices in a way to ease pressures from added costs. The share of companies increasing prices rose one point to 16 percent, while the share of those ‘planning’ to do so in the future, rose sharply to 28 percent – a post-recession high.

Recent NFIB reports have carried a two-pronged message: firstly, small business owners continue to be comfortably positive, and secondly, worker shortages pose the biggest near-term challenge, noted TD Economics in a research report. In spite of a slight fall in the headline figure, the sentiment measure continues to be the most positive it has been in decades. Meanwhile, concerns about the quality of labor remained top in mind.

“Today's report is an indication that businesses will use price increases to partially offset some of the higher costs brought on by the current tight employment backdrop. This is another vote of confidence for the Fed to stick to its interest rate path and hike rates once more in December”, added TD Economics.

At 16:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at -9.9898. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex