U.S. Small Business Optimism Improves

The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index rose to 104.7 during July and recaptured most of its decline during June. The index improved 1.4% m/m, but was down 3.0% y/y.

An improved 22% of firms expected higher real sales and an increased 20% of respondents expected the economy to improve. That remained down, however, from a high of 48% in January 2017. A slightly higher 26% thought that now was a good time to expand the business. Twenty-seven percent of firms expected to make capital outlays, down from the high of 33% last August.

A net 16% of firms were raising average selling prices, up from 10% in May. Expected pricing power slipped last month as a lessened 22% of firms were planning to raise prices, down from 29% in November.

Labor market readings improved during July. The 21% of respondents planning to increase employment was increased m/m, but remained below the record 26% reached last August. The ability to find qualified workers, however, has become difficult. A record 56% of firms were finding few or no qualified candidates for job openings.

As a result of this difficulty, an improved 32% of firms were raising worker compensation. Plans for the future weakened, however, as a lessened 17% of firms planed to raise worker pay, the least since November 2017.

Credit remained easy to get last month. Only three percent of firms reported trouble obtaining financing versus two percent in June.

The small business survey inquires about additional issues facing small business. A record 26% reported problems with the quality of labor. A higher 18% indicated that taxes were the largest problem. Government requirements were worrisome to a steady 13% of respondents, but that was below the September 2013 high of 24%. A lessened nine percent of firms reported the cost of labor as the most significant problem, but that nearly equaled February's record. Competition from large businesses held at nine percent as the biggest problem. Insurance costs/availability concerned a lessened nine percent of respondents. Poor sales were the biggest problem for a steady seven percent of businesses. Financial & interest rate problems worried two percent of respondents. Inflation concerned only two percent of respondents as the biggest problem, about where its been since 2015.

Roughly 24 million small businesses exist in the U.S. and they create 80% of all new jobs. The index is based 1986=100. 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.