U.S. Small Business Optimism Improves

The National Federation of Independent Business reported that its Small Business Optimism Index increased 0.9% during October to 94.9 following two months of slight decline. Optimism remained down 5.4% versus its peak in December 2014.

An improved net 9% of firms reported that now was a good time to expand the business, but the figure has moved sharply lower since its December 2014 peak. A lessened -7% of firms were expecting the economy to improve. This figure had moved steadily higher since its February low. A reduced 1% of firms expected higher real sales in six months, also down sharply versus a late 2014 high.

Despite last month's expectation that the economy would improve, a stable 10% expected to raise employment, down from 15% this past December. Twenty eight percent had positions they were unable to fill right now, a figure that's been fairly steady since Q2'15. Also stable at 27% was the percentage of firms expecting capital expenditures. That percentage had been moving steadily higher May. A higher 2% of firms expected to lift inventory levels, which was a rebound from expectations of sharp inventory decumulation in October.

On the pricing front, an improved 2% of firms are currently raising prices. That was higher m/m, but still well below the July 2014 high of 12%. A lessened 15% were planning to raise prices, and it's been moving down since early last year. Worker compensation improved slightly as 25% of firms were raising it, a figure that's been moving sideways this year. Moving sharply higher to 19%, however, was the percentage of firms which planned to raise compensation in the next three months, its highest level since December.

Twenty-one percent of firms indicated that taxes were the single most important problem, and a higher 21% reported that government requirements were the largest single problem. Fifteen percent felt challenged by the quality of labor, while 11% of firms indicated that poor sales were the largest single problem. A sharply increased 10% reported insurance cost & availability as the largest hurdle. A reduced 5% reported the cost of labor was the biggest problem, and a stable 8 percent reported competition from large businesses as the largest problem. Inflation as the largest problem was indicated by a lower 1% percent of respondents, the least since November.

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.