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Economy in Brief

U.S. Small Business Optimism Index Eases During January
by Tom Moeller  February 9, 2021

• NFIB Small Business Optimism slips to lowest level since May.

• Worries about economic growth & sales persist.

• Pricing power improves marginally.

The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index eased to 95.0 during January, adding to its decline to 95.9 during December. The figure remained well below its October reading of 104.0 and its record of 108.8 in August 2018.

A greatly lessened net -23% of respondents felt that the economy would improve, down from 39% in June. A reduced net -6% expected higher real sales. Earnings trends also deteriorated. A net 8% of firms thought that now was a good time to expand, steady m/m but down from 28% twelve months ago. A net 17% of firms planned to increase employment, down from 23% in September.

Forty-six percent of firms found few or no qualified candidates to fill job openings last month, down from a 57% high in August 2019.

Credit was hard to get by a negligible one percent of respondents, down from April's high of four percent.

Pricing power improved. A higher net 17% of firms raised prices in January, up from 15% twelve months earlier and up from the price deflation reported early last year. A greatly increased net 28% were planning last month to raise prices, the most since November 2018. A higher net 25% of firms raised worker compensation while a moderately increased 17% planned to do so over the next three months.

The most important issues for small businesses were lessened quality of labor (21%), taxes (19%) which is up from 17% twelve months earlier, and government requirements (15%), up from 10% in April of last year. The cost of labor troubled a slightly higher seven percent of respondents while competition from large businesses concerned a steady eight percent. Inflation worried an increased three percent of respondents.

Roughly 24 million small businesses exist in the U.S. and they create 80% of all new jobs. 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) Jan Dec Nov Jan '20 2020 2019 2018
Small Business Optimism Index (1986=100) 95.0 95.9 101.4 104.3 99.6 103.0 106.7
Firms Expecting Economy to Improve -23 -16 8 14 20 13 32
Firms Expecting Higher Real Sales -6 -4 10 23 1 18 26
Firms Reporting Now Is a Good Time to Expand the Business 8 8 12 28 13 25 30
Firms Planning to Increase Employment 17 17 21 19 16 19 21
Firms With Few or No Qualified Applicants for Job Openings (%) 46 48 47 49 46 52 51
Earnings Trends -16 -14 -7 -3 -16 -5 -2
Firms Reporting that Credit Was Harder to Get 1 3 2 4 3 4 4
Firms Raising Average Selling Prices 17 16 18 15 5 13 15
Firms Raising Worker Compensation 25 21 24 36 23 31 33
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