U.S. Small Business Optimism Eases

The National Federation of Independent Business reported that its Small Business Optimism Index declined 0.2% during August to 94.4 following an unrevised 0.1% July uptick. Optimism remained down 5.9% versus its peak in December 2014.

A diminished net -12% of firms expected the economy to improve, the worst reading in three months. A lessened -1% were expecting higher real sales in six months. A reduced -23% of firms expected higher real earnings this quarter, the weakest reading since March 2014. Showing slight improvement to 9% was the percentage of firms reporting that now was a good time to expand the business, but that was down from 15% in December 2014. An improved 28% of firms expected to raise capital expenditures in the next 3 to 6 months, the most since December 2014. 

Employment prospects remained mixed. A lessened nine percent of firms expected to increase employment, the least since March. A higher 48% of respondents found few or no qualified candidates to fill job openings, and an increased 30% of firms had positions they were not able to fill right now, the most since April 2006. A steady 24% of firms raised worker compensation over the last three months, while a slightly reduced 14% were expecting to raise it in the next three months.

Small businesses' pricing ability improved as 3% of firms were raising prices, the most in nine months. Expectations about the future ability to raise prices also rose slightly as 15% of firms planned to raise prices, but that remained down from 20% in December.

A steady four percent of firms reported that credit was tougher to get, up from three percent in October. A sharply reduced 29% of firms felt satisfied that their borrowing needs had been filled in the last three months.

A slightly higher 21% of firms indicated that taxes were the single most important problem. A reduced 20% reported that government requirements were the largest single problem. A higher 15% felt challenged by the quality of labor, but a lessened 11% of firms indicated that poor sales were the largest single problem. A sharply higher nine percent reported the cost of labor was the biggest problem, the most since December 2006. A stable eight percent reported insurance cost & availability as the largest hurdle, and a stable seven percent reported competition from large businesses as the largest problem. Inflation was indicated by two percent of respondents as the largest problem, down from four percent in May.

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.

Fed Communication: Words and Numbers from the Federal Reserve Bank of San Francisco can be found here.