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Economy in Brief

U.S. Small Business Optimism Continues to Weaken
by Tom Moeller  October 8, 2019

The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index declined 1.3% (-5.7% y/y) to 101.8 during September. It was the third decline in four months and left the index at the lowest level since March.

A lessened 9% of respondents expected the economy to improve. That was down from a high of 48% in January 2017. An easier 16% expected higher real sales, down from the November 2017 high of 34%. A reduced 22% thought that now was a good time to expand the business versus the recent high of 34% in August 2018. A lessened 27% of firms expected to make capital outlays versus a high of 33% last August.

A reduced 8% of firms were raising average selling prices versus the May 2018 high of 19%. Expected pricing power fell sharply last month. Only 15% of firms were planning to raise prices, down from 23% three months earlier and a November 2018 high of 29%.

Labor market readings weakened last month. The 17% of respondents planning to increase employment was reduced m/m and remained below the record 26% reached last August. The ability to find qualified workers became easier. A lessened 50% of firms were finding few or no qualified candidates for job openings, down from August's record 57%.

Despite this easing, a steady 29% of firms were currently raising worker compensation. That remained down from the 36% high this past January. A reduced 18% of firms planned to raise worker pay, remaining below the November 2018 high of 25%.

Credit became somewhat more difficult to get last month. Four percent of firms reported trouble obtaining financing versus one percent in September. Sixteen percent of firms reported difficulty near the end of the recession in 2009.

The small business survey inquires about additional issues facing small business. A still high 23% reported a problem with the quality of labor, and a low 16% indicated that taxes were the largest problem. Government requirements were worrisome by a reduced 11% of respondents, below the September 2013 high of 24%. A record 11% of firms reported the cost of labor as the most significant problem. Competition from large businesses was felt by a fairly steady 10% of businesses as the biggest problem. Insurance costs/availability concerned only nine percent of respondents. Poor sales were the biggest problem for nine percent of businesses, down from 32% in 2009. Financial & interest rate problems worried a steady two percent of respondents. Inflation concerned only one percent of respondents as the biggest problem, an expansion low.

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) Sep Aug Jul Sep'18 2018 2017 2016
Small Business Optimism Index (1986=100) 101.8 103.1 104.7 107.9 106.7 104.9 95.3
Firms Expecting Economy to Improve 9 12 20 33 32 39 -5
Firms Expecting Higher Real Sales 16 17 22 29 26 23 5
Firms Reporting Now Is a Good Time to Expand the Business 22 26 26 33 30 23 10
Firms Planning to Increase Employment 17 20 21 23 21 18 11
Firms With Few or No Qualified Applicants for Job Openings (%) 50 57 56 53 51 49 46
Firms Expecting to Make Capital Outlays 27 28 27 30 29 28 26
Firms Reporting That Credit Was Harder to Get 4 1 3 3 4 4 5
Firms Raising Average Selling Prices 8 11 16 15 15 7 0
Firms Raising Worker Compensation 29 29 32 37 33 27 24
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