Small-business sentiment slumps to 7-month low in November
Getty ImagesMorning Glory Diner in Philadelphia, Pennsylvania.
The numbers: The National Federation of Independent Business small-business optimism index fell 2.6 points in November to a seasonally adjusted level of 104.8, the lowest in seven months. Most of the decline coming from expectations about future sales and business conditions.
What happened: No components of the index gained during the month, and only two were flat. Still, NFIB, a lobby group for small-business owners, pointed to an "exceptionally strong two-year trend" for the sentiment tracker. The November decline was the third in a row.
| Index component | Seasonally adjusted level | Monthly change |
| Plans to increase employment | 22% | 0 |
| Plans to make capital outlays | 29% | -1 |
| Plans to increase inventories | 2% | -3 |
| Expect economy to improve | 22% | -11 |
| Expect real sales higher | 26% | -4 |
| Current inventory | -5% | -3 |
| Current job openings | 34% | -4 |
| Expected credit conditions | -5% | 0 |
| Now a good time to expand | 29% | -1 |
| Earnings trends | -4% | -1 |
Big picture: NFIB has been happy with the lower tax rates and regulatory roll-backs of the Trump administration. But now, small businesses are struggling just as much as the rest of the economy to find enough labor. A record number of respondents, a net 25%, called the scarcity of "qualified" workers their top business concern. And more than one-third of owners said they had job openings they could not fill. A net 25% of respondents said they plan to raise compensation, the highest since 1989.
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Owners seem to have questions about the economy: more cited "economic conditions" as the reason it was not a good time to expand than any other reason. And more are uncertain about the "political climate" and what it means for expansion than any other reason.
What they're saying: "When considering the record high levels of optimism, one would think small firms would increasingly opt for capital over labor, especially given the unplanned increase in wages, complaints over the quality of labor candidates and the easy availability of capital (contrary to what they say). Perhaps confidence is not quite as strong as the survey suggests," said Steve Blitz, chief U.S. economist for TS Lombard, after the release of the October NFIB survey.
"Whenever we see sentiment run up so fast to such high levels, we suspect it can reverse just as quickly," Blitz added. "This possibility may very well be the signal small businesses are sending given how their commitments to expand increasingly focuses on labor rather than capital. Opinions are cheap and machinery is much more expensive than labor."
Market reaction: The Dow Jones Industrial AverageDJIA, -0.22% doesn't usually react to the NFIB survey release. It is down a little over 1% in the year to date.
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