U.S. Small Business Optimism Diminishes Slightly

The National Federation of Independent Business reported that its Small Business Optimism Index fell to 104.7 during March from 105.3 in February, but remained up versus 92.6 in March 2016.

Forty-six percent of firms reported they were expecting the economy to improve, nearly the most since March 2002. However, a sharply reduced 18% of firms expected higher real sales in six months. A stable 22% of firms reported that now was a good time to expand the business, nearly the most since December 2004.

On the labor front, an improved 16% planned to increase employment. Finding employees was easier as 45% of firms indicated they had few or no qualified candidates to fill job openings, down from 52% in November. A high 28% percent of firms had to raise worker compensation, just off the expansion peak of 30% in January. Eighteen percent of firms planned to raise compensation in the next three months.

Twenty-nine percent of firms were planning to make capital outlays in the next 3-to-6 months. That equaled the most of the economic expansion. Two percent were planning to raise inventories, up from two percent that were planning to reduce inventories last March.

On the inflation front, five of firms actually raised average selling prices last month, versus four percent that were lowering prices last March. A stable 20% of businesses were planning to raise average selling prices.

A reduced 20% of firms indicated that taxes were the single most important problem. Seventeen percent reported that government requirements were the largest single problem, down from 21% last March. A still high 16% felt challenged by the quality of labor, and a stable 12% of firms indicated that poor sales were the largest single problem. A reduced 8% of firms reported insurance cost & availability as the largest hurdle. A stable 9% reported competition from large businesses as the largest problem, equaling the most of the expansion. A higher 6% felt that cost of labor was their largest single problem. Inflation as the largest problem was indicated by just 1% 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.