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Economy in Brief

U.S. Small Business Optimism Improves Slightly
by Tom Moeller  March 12, 2019

The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index increased to 101.7 during February following five consecutive months of decline. The index gained 0.5% m/m but was 5.5% lower y/y.

A higher 11% of respondents expected the economy to improve, but that remained down from a high of 48% in January 2017. An increased 22% thought that now was a good time to expand the business. It was 34% in August of last year. Sixteen percent expected higher real sales, below a 29% high two years earlier.

Pricing power deteriorated m/m. A lessened 26% of firms were planning to raise prices and that remained down from November's ten-year high of 29%. Current pricing pressure also eased. A net 13% of firms were raising average selling prices, the least in 12 months and below the 19% high in May of last year.

Labor market readings deteriorated m/m. The 16% of respondents planning to increase employment remained below the record 26% in August. A steady 49% were finding few or no qualified candidates for job openings, but that remained down versus 54% in December.

Pressure to raise worker compensation continued to ease. A greatly lessened 18% of firms were planning to raise compensation, and a lower 31% were doing so now, down from the 37% high reached in September.

Credit became a little harder to get. A higher six percent of businesses reported difficulties in obtaining financing, the most since September 2017 and double last September's low.

The small business survey inquires about problems facing small business. The most pressing problem in February was the quality of labor. Twenty-two percent reported problems versus 18% during all of 2017. A low 15% indicated that taxes were the largest problem, down from a December 2014 high of 27%. Government requirements were worrisome to a slightly higher 14% of respondents, but that remained below the 22% in 2015. A sharply higher ten percent of firms reported the cost of labor as the most significant problem. Competition from large businesses rose to ten percent as the biggest problem. Insurance costs/availability worried a lessened eight percent of respondents. Poor sales were steady m/m at a greatly reduced nine percent. Financial & interest rate problems worried only two percent of respondents. A low two percent reported inflation as the biggest problem.

Roughly 24 million small businesses exist in the U.S. and they create 80% of all new jobs. The index is based 1986=100. The typical NFIB member employs 10 people and reports gross sales of about $500,000 a year.

The NFIB figures can be found in Haver's SURVEYS database.

National Federation of Independent Business (SA, Net % of Firms) Feb Jan Dec Feb'18 2018 2017 2016
Small Business Optimism Index (1986=100) 101.7 101.2 104.4 107.6 106.7 104.9 95.3
Firms Expecting Economy to Improve 11 6 16 43 32 39 -5
Firms Expecting Higher Real Sales 16 16 23 28 26 23 5
Firms Reporting Now Is a Good Time to Expand the Business 22 20 24 32 30 23 10
Firms Planning to Increase Employment 16 18 23 18 21 18 11
Firms With Few or No Qualified Applicants for Job Openings (%) 49 49 54 47 51 49 46
Firms Reporting That Credit Was Harder to Get 6 4 5 3 4 4 5
Firms Raising Average Selling Prices 13 15 17 13 15 7 0
Firms Raising Worker Compensation 31 36 35 31 33 27 24
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