October Optimism Dips for Small and Medium Business Owners

In October, the outlook for small and medium-sized business owners took a hit due to declining profits and sales. The National Federation of Independent Business reported that its optimism index dropped by six-tenths of a point, landing at 98.2. Out of the ten components that contribute to this index, five saw a decline while four improved.

Profit growth reports plummeted in October, with seasonally adjusted net profit at 25%, down nine points from September. This marked the largest decline in profit metrics since the pandemic began.

For those anticipating lower profits, common concerns included weak sales (33%), increasing material costs (16%), and both price fluctuations and labor costs tied at 9% each.

Sales reports also indicated a downturn, with owners reporting a nominal sales change of just a net minus 13%, a decline by six percentage points compared to September. Similarly, expectations for real growth cooled, with net profit forecasts, which had initially shown promise, now down by two percentage points to 6%.

Business managers expressed a more pessimistic view of their companies’ health in October, with a notable shift in opinions. While 12% rated their business as “excellent” (up one point), 51% categorized it as “good” (down six points), 33% called it “fair” (up six points), and 4% described it as “poor” (no change).

Expectations for improved business conditions also dipped, falling three percentage points to a net 20% (seasonally adjusted). This figure marked the lowest since April but still exceeded the historical average of 4%.

Thirteen percent of owners believed October was a good time for business expansion, which was an improvement of two points from September, though still modest by expansion era standards.

On the pricing front, there was a slight easing in pressure during October. The percentage of owners increasing average sales prices decreased by three points to a net 21% on a seasonally adjusted basis. While still above the long-term monthly average of 13%, this indicates ongoing inflationary challenges. In unadjusted terms, 31% reported raising their prices (down two points), while 12% lowered their charges (up two points). Looking ahead, a net 30% plan to increase prices over the next three months, down one percentage point from September.

Employment levels remained tight, with 32% of business owners citing unfilled positions for the second consecutive month, a situation reminiscent of December 2020. Complaints regarding the quality of work surged, with 27% indicating this as their primary challenge—up nine points since September and nearing the record high set at the end of 2021. As a result, labor quality emerged as the leading constraint, outpacing tax concerns by 11 percentage points.