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Economy in Brief

Small Business More Optimistic in June
by Sandy Batten  July 13, 2021

• NFIB optimism index rose to highest level since last October.

• Seven of 10 index components increased.

• Labor shortages and price hikes continued.

The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index rose 2.9 points in June to 102.5, its highest reading since last October, boosted by the reopening of the economy. Seven of the index's 10 components increased.

The net balance of respondents expecting the economy to improve over the next six months jumped up to -12% in June from -26% in May, but remained depressed relative to its post-pandemic high of +39% in June 2020. A net 28% intend to increase employment, a series record dating back to 1973. However, firms are still having difficulty finding qualified employees with 46% of respondents reporting job openings that could not be filled. This is down two percentage points from the record 48% reported in May but still well above the 48-year historical average of 22% for the series. Consequently, compensation in on the rise. A record net 39% of respondents reported increasing compensation while a net 26% plan to raise compensation in the next three months, the second highest reading in the series history.

The net considering now a good time to expand their business rose to 15% in June, the highest reading since before the pandemic, from 13%. The next expecting higher sales rose four percentage points to 7, the highest reading since last November. A record net 11% reported that their current inventories were "too low." Accordingly, the net planning to increase inventories rose five percentage points to 11%, its second highest reading on record. A decline in inventories was a major drag on Q1 real GDP. The net planning to make capital expenditures slipped two percentage points to 25%.

Inflation pressures continued in June. The percentage of firms that have raised their selling prices rose seven percentage points to 47%, its highest reading since January 1981. And the percentage planning to raise selling prices increased to 44%, its highest reading since October 1979.

Important issues for small businesses were the quality of labor (unchanged at 26%), up from a pandemic low of 15% in April 2020 and inflation, which jumped to 13%, its highest reading since September 2008.

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) Jun May Apr Jun '20 2020 2019 2018
Small Business Optimism Index (1986=100) 102.5 99.6 99.8 100.6 99.6 103.0 106.7
Firms Expecting Economy to Improve -12 -26 -14 39 20 13 32
Firms Expecting Higher Real Sales 7 3 1 13 1 18 26
Firms Reporting Now Is a Good Time to Expand the Business 15 13 14 13 13 25 30
Firms Planning to Increase Employment 28 27 21 16 16 19 21
Firms With Few or No Qualified Applicants for Job Openings (%) 56 57 54 43 46 52 51
Earnings Trends -5 -11 -7 -35 -16 -5 -2
Firms Reporting that Credit Was Harder to Get 2 2 3 3 3 4 4
Firms Raising Average Selling Prices 47 40 36 -5 5 13 15
Firms Raising Worker Compensation 39 34 31 14 23 31 33
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