The NFIB Research Foundation has collected Small Business Economic Trends data with quarterly surveys since the 4th quarter of 1973 and monthly surveys since 1986. Survey respondents are drawn from NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in October 2016

October 2016 Report: Small Business Economic Trends

Small Business Optimism Index Remains Low as Americans go to the Polls

NFIB data shows uncertainty paralyzing small business owners

Small business owners are rattled by uncertainty and unable to decide whether to expand, whether to hire, or whether to make other important decisions that might boost the economy, according to the National Federation of Independent Business (NFIB) Small Business Economic Trends report, released today.

“The data contained in this report shows record levels of uncertainty among small business owners, and it is tied directly to the election,” said NFIB President and CEO Juanita Duggan. “The result is economic inertia, with business owners unwilling to make the business decisions that would jumpstart the economy.”

The NFIB Small Business Optimism Index ticked up a meager 0.8 points to 94.9. Five of the 10 components posted a gain, three declined, and two remained unchanged in October. Nearly half of the respondents cited taxes or regulations and red tape as their “Single Most Important Business Problem.”

That’s clear evidence, according to Duggan, that government action is a big obstacle to economic growth.

“As Americans go to the polls today, small business owners, who create most new jobs and employ 58 million Americans, are struggling with high taxes, ball-and-chain regulations, and spiraling health insurance costs,” she said. “In addition to all of that, small business owners cannot reasonably anticipate what actions government will take in the near future that will create even more burdens.”

Owners who expect better business conditions in the next six months fell seven points, which means that now, more owners expect that conditions will worsen. Only nine percent of small business owners think that now is a good time to expand, up two points. Among owners who said that now is a bad tie to expand, the political climate was the second most frequently cited reason. 

“Small business owners need predictability. What we’re seeing in our data is that the political climate creates the opposite,” said NFIB Chief Economist Bill Dunkelberg.  “Government actions affect basic business decisions, and owners are unwilling to take risks, make investments, or hire new employees as long as politicians and regulators keep them guessing about the future.”



Fifty-five percent reported hiring or trying to hire (down 3 points), but 48 percent reported few or no qualified applicants for the positions they were trying to fill. Twenty-eight percent of all owners reported job openings they could not fill in the current period, up 4 points. This indicates that labor markets remain tight and the unemployment rate will remain steady at what many call “full employment”. Fifteen percent reported using temporary workers, unchanged. A seasonally adjusted net 10 percent plan to create new jobs, unchanged from September. Job creation plans were strongest in manufacturing and professional services.




The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past 3 months compared to the prior 3 months deteriorated 1 percentage point to a net negative 7 percent. Seasonally adjusted, the net percent of owners expecting higher real sales volumes fell 3 points to a net 1 percent of owners, a weak showing. With weak sales prospects, hiring and inventory investment will likely be weak going forward.

The net percent of owners reporting inventory gains rose 1 point to a net negative 3 percent (seasonally adjusted), still negative but better than the negative 4 point average for the 9 months prior. The net percent of owners viewing current inventory stocks as “too low” improved 3 points to a net negative 4 percent, reflecting inventory reductions facilitated by stronger consumer spending in Q3. The net percent of owners planning to add to inventory improved 9 points to a net 2 percent, a strong reversal.


Fifty-seven percent reported capital outlays, up 2 points from September, but trending down on a quarterly basis. The percentage of owners making an outlay peaked for this recovery in July 2015 at 61 percent, revisited that percentage in January but has faded since. The percent of owners planning capital outlays in the next 3 to 6 months was unchanged at 27 percent, the second highest reading in the recovery, but historically weak. Seasonally adjusted, the net percent expecting better business conditions fell 7 percentage points to a net negative 7 percent. The seasonally adjusted net percent expecting higher real sales fell 3 points to 1 percent of all owners, a very weak showing.


The lack of “inflation” on Main Street continues to contribute to the Federal Reserve’s frustration. The net percent of owners raising average selling prices was a net 2 percent (up 3 points); this is in contrast to a net 70 percent raising average prices in the 1970s. Clearly the small business sector can produce “inflation”. Thirteen percent of owners reported reducing their average selling prices in the past three months (down 1 point) and 13 percent reported price increases (up 1 point). Seasonally adjusted, a net 15 percent plan price hikes (down 3 points). But for most small business owners, growth is too low to put enough pressure on supply to produce price increases, with the exception of new houses where supply is insufficient and prices are rising.


A seasonally adjusted net 25 percent of owners reported raising worker compensation, up 3 points. The net percent planning to increase compensation rose 5 points to 19 percent. The strongest reading in this recovery occurred in January with a net 27 percent reporting higher employee compensation. The lowest was a net negative 2 percent in 2009, leaving this month’s reading among the highest in the recovery. Earnings trends deteriorated 1 point to a net negative 21 percent reporting quarter on quarter profit improvements.


Four percent of owners reported that all their borrowing needs were not satisfied, down 2 points from September. Twenty-nine percent reported all credit needs met (down 3 points), and 53 percent explicitly said they did not want a loan, up 4 points. However, including those who did not answer the question, presumably uninterested in borrowing, 67 percent of owners have no interest in borrowing.

Record numbers of firms remain on the “credit sidelines”, seeing no good reason to borrow. Only 2 percent reported that financing was their top business problem compared to 21 percent citing taxes, 21 percent citing regulations and red tape, and 15 percent the availability of qualified labor. Twenty-eight percent of all owners reported borrowing on a regular basis (down 4 points).

The net percent of owners expecting credit conditions to ease in the coming months was a negative 6 percent, up 1 point.


The first guess at GDP growth for Q3 was 2.9 percent, a marked improvement over the prior four quarters. But prospects for the fourth quarter are not promising, auto sales are weakening, housing supply is constrained, inventories are still a bit excessive, and consumer sentiment has been declining. Businesses are not inclined to be investing in new plant and equipment, not knowing where already high marginal tax rates might go.

The Federal Reserve passed on a November rate hike as expected even though 9 of the 12 regional banks requested an increase and two FOMC members dissented. The risk of a market disruption in the final week of voting for a president is one worth avoiding, delaying for 30 days won’t matter although delaying for eight years – that’s another matter. The Fed’s monthly (morphing into yearly) delays have been a major source of uncertainty for owners and market participants as well. If the Fed gurus don’t know which way the economy is headed, who does?

The election is days away, and that will likely change the amount of uncertainty in the economy. This will convert “uncertain” and “don’t know” views into firmer views, bad or good, and trigger actions to protect against anticipated policies or take advantage of the expected improvement in the economy. While new uncertainties will likely emerge, the level of uncertainty should diminish. Stay tuned for the November survey which will show the response to the election outcome.



NFIB Chief Economist William Dunkelberg NFIB Chief Economist William Dunkelberg


Maria Bartiromo announces the monthly SBET Index level from NFIB


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