Small Business Optimism Falls to Six‑Month Low as Hiring Cools and Market Volatility Rises

Weekly Economic Review: Nov. 14, 2025

This week’s economic data highlights include: (1) the NFIB Small Business Optimism

Index for October, (2) weekly jobless and continuing claims, and (3) market trends.

Key Summary:

Small business optimism fell to its lowest since April as earnings weakened, hiring cooled, and confidence in future conditions remained subdued amid persistent labor challenges and lingering economic uncertainty.

The National Federation of Independent Business (“NFIB”) Small Business Optimism Index declined to 98.2 in October, marking its second consecutive monthly drop and the lowest level since April. The decrease was driven by weaker earnings and reduced confidence in the economy, continuing a downward trend from the start of the year. While optimism is now near the long-term average, uncertainty fell to its lowest level this year. It remains elevated however, likely due to the upcoming elections and the recent government shutdown.

Labor quality remains the most pressing challenge for small business owners, far outweighing concerns about taxes and inflation. Profit trends weakened significantly due to lower sales and rising material costs. As a result, hiring plans have cooled, and compensation increases have slowed. Capital spending remains subdued despite a slight improvement in future plans, and credit conditions eased modestly with reduced borrowing activity. Inflation pressures have softened but remain above historical norms, and supply chain disruptions continue to affect most businesses, though less severely than before.

Overall business health deteriorated in October, with fewer owners rating conditions as good, and confidence in expansion remaining weak. Expectations for better business conditions hit their lowest level since April, reinforcing a cautious outlook. Beyond labor quality, other concerns such as taxes, regulations, and insurance costs remain secondary, while issues like financing and competition from large businesses are relatively stable and less significant.

Jobless claims remain stable despite the recent government shutdown, with initial claims edging down to 226,000 and continuing claims falling to 1.94 million, signaling no significant rise in layoffs.

The Labor Department has not issued weekly jobless claims reports since September 25 due to the government shutdown, but states continued submitting data. With the government reopening, official reporting will resume Thursday. Bloomberg estimates initial claims for the week ending November 8 fell by 2,000 to 226,000, signaling labor market stability, while continuing claims dropped to 1.94 million for the prior week, down from 1.96 million.

Markets ended mixed as volatility persisted post-shutdown, with equities flat to lower and Treasury prices falling (meaning yields rising).  Odds of a December Fed rate cut fell sharply to 43%, signaling cautious sentiment ahead of key data and Nvidia earnings.

Equity markets were mixed: S&P 500 (+0.08%) and Dow (+0.34%) edged up, while Nasdaq (-0.45%) and Russell 2000 (-1.83%) fell. Volatility followed the end of the 43-day shutdown, driven by uncertainty over a December Fed rate cut and delayed economic data. Healthcare (+3.6%) and Energy (+2.5%) led gains; Consumer Discretionary (-2.6%) and Communication Services (-1.5%) declined. Nvidia’s earnings and September jobs data next week will guide market expectations.

Treasury yields climbed as focus shifted to debt issuance and Fed policy: 2-year at 3.62%, 5-year at 3.74%, and 10-year at 4.14%. Odds of a December rate cut dropped to 43% from 66%, while three cuts remain priced in for 2026, which would lower the federal funds rate to 3.25%.

Further details on the October Small Business Optimism Index, weekly jobless and continuing claims, market trends, and the upcoming economic calendar are provided below.

NFIB Small Business Optimism Index – October Update: 

The NFIB Small Business Optimism Index declined by 0.6 points to 98.2 in October from 98.8 in September, marking its second consecutive monthly drop and the lowest level since April. The decline was driven primarily by weaker earnings and reduced confidence in the economy. While optimism began the year at a relatively strong 102.8, it has generally trended downward – aside from modest gains in July and August – bringing the current reading close to the 52-year average of 98.

Meanwhile, the uncertainty index fell by 12 points to 88, its lowest level this year, though it remains elevated. The timing of the survey suggests that upcoming elections and the potential for a government shutdown likely influenced sentiment. Overall, five of the index’s ten components declined, while four improved (see the Index Components section for details).

Labor Markets

• Job openings remain high, showing continued difficulty in filling positions.
• Hiring plans have started to cool after steady growth from May to September.
• Labor quality has emerged as the most significant challenge for business owners, surpassing other concerns like taxes.
• The construction industry faces the most severe labor shortages compared to other sectors.

 Capital Spending

• Over half of small business owners reported capital spending in the past six months, primarily on vehicles and facility improvements, though equipment purchases declined notably.
• Plans for future capital outlays ticked up slightly, but overall investment activity remains subdued.

Sales and Inventories

• Recent sales performance weakened, with more owners reporting lower nominal sales and fewer expecting real sales growth in the coming months.
• Inventory positions remain soft, with net reductions reported and minimal plans for future inventory investment, despite a slight uptick in owners viewing stocks as too low.
• Supply chain disruptions continue to affect most businesses, though the severity of impact has eased slightly compared to September.

Compensation and Earnings

• Compensation increases have slowed, with fewer owners reporting recent raises, though plans for future increases remain steady.
• Profit trends weakened significantly, driven mainly by lower sales and rising material costs, making this the largest contributor to the decline in overall optimism.

Credit Markets

• Credit conditions eased slightly, with fewer owners reporting difficulty obtaining loans and lower interest rates compared to September; short-term loan rates averaged 8.7%.
• Regular borrowing activity declined, indicating a modest pullback in credit demand among small business owners.

Inflation

• Actual and planned price increases eased in October, but selling prices remain above historical averages, indicating ongoing inflationary pressure.
• Fewer owners view inflation as their top business challenge, though higher input costs continue to affect operations.

Outlook

• Business health weakened in October as fewer owners rated conditions as good and more described them as fair, while excellent ratings saw a slight uptick.
• Expectations for better conditions hit their lowest since April, and confidence in expansion remains weak.

Single Most Important Problem

• Labor quality emerged as the top challenge for small business owners in October, rising sharply and reaching its highest level since late 2021, far ahead of taxes.
• Taxes ranked second as the most cited problem, while concerns about labor costs, inflation, and government regulations showed slight declines or minor changes.
• Other issues such as poor sales, insurance costs, financing, and competition from large businesses remained relatively stable and less significant.

Index Components

The ten components used to calculate the Small Business Optimism Index, and their October results (with changes from September) are as follows:

Jobless Claims – Week Ending November 8:

The Labor Department has not released its weekly jobless claims report since September 25 due to the government shutdown. However, it provided downloadable data for most states, as states continued collecting weekly unemployment claims and submitting them to the department. With the government reopening on Wednesday, the Bureau of Labor Statistics is expected to resume publishing weekly initial and continuing claims this Thursday.

According to Bloomberg, for the week ending November 8, initial claims—offering the most current snapshot of labor market conditions—declined by 2,000 to 226,000, compared to 228,000 the prior week.  This suggests jobless claims remain stable, showing no signs of a significant rise in layoffs. Bloomberg adjusted these figures using pre-released seasonal factors from the Bureau of Labor Statistics.

Continuing claims, representing the total number of individuals receiving unemployment benefits, fell to 1.94 million for the week ending November 1, down from 1.96 million the previous week.

Market Analysis:

Equity Market Weekly Recap

Major equity markets ended mixed this week. The S&P 500 and Dow Jones Industrial Average posted modest gains, while the Nasdaq finished slightly lower. Despite Wednesday’s ending of the historic 43-day U.S. government shutdown, volatility persisted, with a sharp drop Thursday followed by a rebound Friday. This was driven by growing doubts about a potential Fed rate cut in December, fueled by hawkish comments from policymakers, the absence of key economic data, and concerns over stretched valuations in AI stocks.

Markets will closely watch Nvidia’s earnings on November 19, a key gauge for the AI trade, and await delayed economic reports – including September jobs data scheduled for November 20—that will shape expectations for the Fed’s December meeting. Healthcare led the gains with an increase of 3.60%, followed by Energy, which rose 2.53%. On the downside, Consumer Discretionary declined 2.60%, while Communication Services fell 1.45%.

Weekly and Year-To-Date (YTD) Performance Highlights:

• Nasdaq: -0.45% (weekly) and +18.59% (YTD), closing at 22,901
• S&P 500: +0.08% (weekly) and +14.49% (YTD), ending at 6,734
• Dow Jones Industrial Average: +0.34% (weekly) and +10.82% (YTD), closing at 47,147
• Russell 2000: -1.83% (weekly) and +7.09% (YTD), ending at 2,388

Treasury Market Update

Treasury yields rose across all maturities this week. The end of the 43-day government shutdown on November 12 sparked a market rally and pushed yields higher as investors shifted focus to delayed economic data, substantial debt issuance, and the Federal Reserve’s cautious stance on rate cuts – all contributing to expectations of a steeper yield curve.

Key moves included:

• 2-year yield: 3.62% (+7 bps)
• 5-year yield: 3.74% (+7 bps)
• 10-year yield: 4.14% (+3 bps)

Rate Cut Expectations

Markets now see a much lower likelihood of a rate cut at the December 9–10 FOMC meeting, with odds at 43%, down from 66% last week—essentially a coin flip. Looking ahead to 2026, expectations remain unchanged, with three 25-basis-point cuts fully priced in for January, June, and September. These moves would bring the federal funds rate upper bound down to 3.25% from the current 4.00%.

Next Week’s Economic Calendar:

The economic calendar for next week is relatively light, with the key highlight being the CPI report on Friday. Scheduled reports include:

• Tuesday:
  • Capacity Utilization
• Wednesday:
  • FOMC Meeting Minutes
• Thursday:
  • Weekly Jobless Claims
  • Existing Home Sales
  • Housing Starts for September
  • Building Permits for September
  • New Home Sales for September
  • Change in Private Payrolls & Unemployment Rate for September
• Friday:
  • S&P Global US Manufacturing PMI
  • S&P Global US Services PMI
  • S&P global US Composite PMI

For a visual representation of this week’s economic review, you can view or download the slide deck here: CBC Weekly Economic Update PPT Slides 11.14.2025
Mark Yoon, CFA CPA
EVP & CFO of Commercial Bank of California

Thomas McCullough
EVP of Commercial Bank of California

_______________________________________________________________________

All content available on this material is general in nature, not directed or tailored to any particular person, and is for informational purposes only. Any of its content is not offered as investment advice and should not be deemed as investment advice or a recommendation to purchase or sell any specific security. The information contained herein reflects the opinions and projections of Commercial Bank of California (CBC) as of the date hereof, which are subject to change without notice at any time. CBC does not represent that any opinion or projection will be realized. The information contained herein has been obtained from sources considered reliable, but neither CBC nor any of its advisors, officers, directors, or affiliates represents that the information presented on this material is accurate, current, or complete, and such information is subject to change without notice.