By Amina Niasse

NEW YORK U.S. small business sentiment fell for a third consecutive month in October, signaling inflation and labor difficulties could be having a prolonged effect on business earnings, according to a report published on Tuesday.

A National Federation of Independent Business (NFIB) index fell to 90.7 in October from September’s 90.8. The fall keeps the index below its 50-year average of 98 for the 22nd-straight month as the net share of businesses reporting higher profits fell 8 points from September to a net negative 32%.

After reaching its high for the year in July, small business optimism has been eroding since August on concerns of a tightening labor market and inflation. Respondents reporting reduced profits are most frequently citing weakening sales and higher input costs.

“The October data shows that small businesses are still recovering, and owners are not optimistic about better business conditions," said Bill Dunkelberg, the NFIB's chief economist. "Small business owners are not growing their inventories as labor and energy costs are not falling, making it a gloomy outlook for the remainder of the year.”

As the Federal Reserve’s rate hike cycle slows, economic uncertainty persists for small businesses who’ve faced higher borrowing costs over the year. Mixed projections surrounding the possibility of a future recession also continue to impact the business outlook.

On a six-month basis, the share of owners expecting better business conditions remained unchanged after falling 6 points to a net negative 43% in September. In addition, 23% of business owners listed tight labor conditions as a top concern, while 22% of respondents listed inflation.

Businesses in the construction, transportation, and services sectors experienced labor shortage as a difficulty most often, while owners in the finance and retail sectors experienced the most acute price hikes.

(Reporting by Amina Niasse; Editing by Andrea Ricci)