Within the NFIB’s Small Business Optimism report, the survey also provides a look into what firms are seeing as their biggest challenges each month.  In September, inflation once again came in at top of mind with 23% of businesses reporting this as their biggest issue. Quality of labor and taxes were the two next most common concerns and the only others that single-handily accounted for double-digit shares.  Of those, quality of labor saw a particularly large 4 percentage point drop last month.

As mentioned above, taxes were the third most common response in September at 14%. That was up slightly from 13% the month prior. Government requirements and red tape also rose a percentage point and combined the two problems made for 23% of responses. As the election closes in, that is actually a relatively small increase in these concerns as other indicators like the Economic Policy Uncertainty Index have surged.

At a combined 23%, government-related concerns on a combined basis equal the share of businesses reporting inflation as the biggest problem. As mentioned previously, inflation responses were lower month over month. Additionally, current levels are much lower than they were at the peak a couple of years ago.  That said, current levels also remain very elevated historically, remaining in the upper decile of readings.

Factoring other categories that can be inflationary-adjacent, the picture changes slightly.  One interesting area that has seen a surge recently is the cost or availability of insurance.  That index is up to 8% of responses versus only 3% three months ago.  That is the most elevated reading since the August 2021 spike to low double digits.  Although that is the highest reading in a few years, this problem is not yet elevated from a longer-term historical perspective with September’s reading actually matching the historical median. Furthermore, combining a range of expense-related categories (inflation, cost of labor, and cost/availability of insurance) shows that there has been an uptick in cost concerns over the past few months, but things aren’t quite as bad as they were a couple of years ago.

Speaking of cost of labor, the combined share of businesses reporting cost or quality of labor as their biggest problem has continued to trend lower, consistent with a cooling labor market.  With September’s reading coming in at 26%, it was the lowest reading since the spring of 2020.

Early this morning, the NFIB published small business sentiment data for September.  The Small Business Optimism Index ticked up from 91.2 to 91.5. While stronger, that wasn’t as large of an uptick as was expected as the consensus forecast expected an increase to 92.0.  Regardless, sentiment remains historically low in the bottom quintile of historical readings back to 1986.

In the table below, we show each category of the report including the previous month’s reading, the month-over-month change in index points, and how those rank as a percentile of all periods of the survey’s history.  Breadth for components to the headline number was slightly positive with five categories rising, two going unchanged, and another three falling month over month.  As for other categories, the results were much weaker. Of the non-inputs to the optimism index, only three components were higher versus five that declined.  Across indicators, the vast majority are historically low—many ranking in the bottom decile of readings—save for some labor market-related points like Job Openings Hard to Fill, Compensation, and Compensation plans.  With that said, those labor indices are also well off highs from recent years, and as we discussed in today’s Morning Lineup, the past few months have seen stabilization in these indicators.

Of those indices that saw improvement in September, the largest MoM jump was in expectations for higher real sales.  That index jumped from -18 in August to -9 in September. That ties July for the strongest reading of the year, albeit it is also the 33rd consecutive negative reading in this index, a record streak.  While sales expectations improved materially, actual sales changes have continued to deteriorate falling 1 point to -17. That ties last November and October for the lowest readings since the pandemic.  As actual top-line results have been reported as weaker, actual earnings changes improved from -37 to -34 even as the higher prices index rebounded a couple of points. Granted, even with that improvement, actual earnings changes continue to see some of the weakest readings in this index since the Great Recession.

One other key area of weakness we noted in today’s Morning Lineup concerned capex.  Both actual and expected capex dropped in September.  For plans, the index is down to 19 which is the lowest reading since April 2023 whereas actual capex at 51 hit its lowest since July 2022.

Finally, we would note that an auxiliary index to the report, the Economic Policy Uncertainty Index, is surging.  This index tracking small business trepidation concerning economic policy typically rises during presidential election years; at that, those increases are usually far larger than non-election years.  However, the 24-point leap over the past year through September is the largest YoY jump for that month of any year in the index’s history, Presidential election year or otherwise, and the index itself is now at a record high.  As we noted last month (see here and here), the NFIB survey typically has political sensitivities and the increasingly tight presidential race would make sense with that rise in policy uncertainty.

It was a brutal overnight session for stocks in Hong Kong where the Hang Seng plunged 9.4% after Chinese stocks rallied less than investors had hoped after re-opening from the six-trading session National Holiday. Last night’s decline was the largest one-day decline for the Hang Seng since the depths of the Financial Crisis in October 2008 and before that two days in October 1997. Although stocks in Hong Kong were down sharply during the session, the Hang Seng is still up over 23% from its September low.

As mentioned above, the last four times that the Hang Seng has declined more than 9% in a day occurred in October.  Including these four days, eight of the eighteen days that the Hang Seng has declined by more than 9% occurred in October. So while October is the most volatile month of the year for US stocks, the same applies to Hong Kong as well!

To illustrate this another way, the chart below shows a distribution of 5% one-day drops in the Hang Seng since 1964. Of the 132 occurrences, 20 occurred in October, and the next closest month is March with just 14.

October has not only been the champion of 5%+ daily declines, but 5%+ gains as well. Throughout its history, the Hang Seng has gained 5% or more 138 times, and 23 of those occurred in October which is more than 50% greater than the next closest month (November). Overall, October has been home to 43 (15.9%) of the Hang Seng’s 270 daily moves of at least 5%.