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Economy in Brief

U.S. Small Business Optimism Declines
by Tom Moeller  July 9, 2019

The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index fell to 103.3 during June and reversed the May gain. The decline followed four straight months of increase. The index fell 1.6% m/m, and was down 3.6% y/y.

A lessened 17% of firms expected higher real sales, down from 23% in May. A stable 16% of respondents expected the economy to improve, but that remained down from a high of 48% in January 2017. A greatly lessened 24% thought that now was a good time to expand the business, the lowest level in three months. Just 26% of firms expected to make capital outlays, the fewest since January.

A net 17% of firms were raising average selling prices, up from 10% in May. Expected pricing power improved last month as a higher 23% of firms were planning to raise prices, up from 20% in May. However, it remained below November's ten-year high of 29%. Current pricing pressure strengthened.

Labor market readings weakened during June. The 19% of respondents planning to increase employment remained below the record 26% in last August. A lessened 50% of firms were finding few or no qualified candidates for job openings, an amount that's been moving sideways all year.

Pressure to raise worker compensation eased as a lessened 28% of firms raised worker pay, the least since December 2017. The percentage of firms that were planning to raise compensation also backpedaled to 21% and reversed May's rise.

Credit became easier to get last month. Only two percent of firms reported trouble obtaining financing, the least since 2002.

The small business survey inquires about additional issues facing small business. A lessened 21% reported problems with the quality of labor. A higher 18% indicated that taxes were the largest problem. Government requirements were worrisome to a fewer 13% of respondents, below the September 2013 high of 24%. A sharply higher ten percent of firms reported the cost of labor as the most significant problem, equaling February's record. Poor sales eased to seven percent of firms as the biggest problem. Insurance costs/availability concerned a steady ten percent of respondents. Competition from large businesses fell to nine percent as the biggest problem. Financial & interest rate problems worried two percent of respondents. Inflation concerned a steady two percent of respondents as the biggest problem, about where its been since 2015.

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) Jun May Apr Jun'18 2018 2017 2016
Small Business Optimism Index (1986=100) 103.3 105.0 103.5 107.2 106.7 104.9 95.3
Firms Expecting Economy to Improve 16 16 13 33 32 39 -5
Firms Expecting Higher Real Sales 17 23 20 26 26 23 5
Firms Reporting Now Is a Good Time to Expand the Business 24 30 25 29 30 23 10
Firms Planning to Increase Employment 19 21 20 20 21 18 11
Firms With Few or No Qualified Applicants for Job Openings (%) 50 54 49 55 51 49 46
Firms Expecting to Make Capital Outlays 26 30 27 29 29 28 26
Firms Reporting That Credit Was Harder to Get 2 4 4 2 4 4 5
Firms Raising Average Selling Prices 17 10 13 14 15 7 0
Firms Raising Worker Compensation 28 34 34 31 33 27 24
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