- The NFIB’s small business optimism index fell 2.6 points to 101.4 in November. The reading came in below market expectations, which called for a more moderate pullback to 102.5.
- Under the hood, six of the ten subcomponents fell on the month, while four improved. The biggest drops were for expectations for economic improvement, which fell a sharp 19 points to 8%. This was followed by a 7-point decline in plans to increase inventories (5%) and a 4-point decline in earnings trends (-7%).
- Labor market indicators were broadly positive. The share of firms planning to increase employment rose three points to 21%, while current job opening rose one point to 34%. The compensation metrics also improved on the month. The share of firms increasing worker compensation rose one point to 24%, while the share of firms planning to do so in the future increased two points to 20%. Quality of labor concerns remained top of mind, increasing by another two points to 24% last month – not far off from the pre-crisis level of 25%.
- Among the remaining indicators, the proportion of firms that expect to make capital outlays (26%), those that believe that now is a good time to expand (12%) and those that expect higher real sales (10%), all fell one point apiece.
- The uncertainty index fell eight points on the month, but remained at a historically high reading of 90.
Key Implications
- After recovering and holding near the pre-crisis level in the prior two months, confidence among American small businesses took a step back in November. This moderation is in tune with a combination of elevated uncertainty and a rising trend in new COVID-19 infections.
- Economic activity is likely to soften in the near-term, given increased health safety concerns among consumers and the potential for added containment measures now that the virus’ spread is an all-time high. Small businesses will feel the pinch too – a narrative supported by the sharp deterioration in expectations regarding an improvement in the economy in today’s report. On the other hand, the fact that most employment subcomponents continued to improve on the month is an encouraging development that points to some underlying resilience among small businesses.
- Positive developments on the vaccine front have strengthened the view that there is a light at the end of the tunnel. Getting the pandemic under control through the use of vaccines will allow for a firmer recovery to take shape, with reduced health safety concerns breathing new life into businesses that have been hammered by the health crisis. With that in mind, the near-term focus will be on getting over the latest COVID-19 hurdle. A new fiscal relief package, which could be passed in the days ahead, would go a long way to supporting near-term economic activity and small businesses.
