U.S. Small Business Optimism Index Is Fairly Steady; Prices Fall

The National Federation of Independent Business reported that its Small Business Optimism Index gained 0.4 points during December to a seasonally adjusted 95.2. It remained down, however, from 100.4 in December 2014. According to the NFIB, the December level also remained below the 42-year average of 98 and was consistent with economic growth of 2.5%.

The net percentage of firms expecting higher real sales in six months improved to 8, the highest level since April. The percentage of firms expecting the economy to improve, however, fell to -14, the lowest point since March 2014. As for business activity, 9% of firms reported that now was a good time to expand the business, the low end of the range of the last 18 months.

The shortage of labor remained in place as 48% of respondents found few or no qualified candidates to fill job openings. Twenty eight percent of firms had positions they were not able to fill right now which was the highest point since August. A higher 15% of firms expected to increase employment, unchanged from the end of last year. A steady net 23% of firms raised worker compensation over the last twelve months, but a greatly improved 20% were expecting to raise it in the next three months, the most since November 2006.

Small businesses ability to improve pricing remained under pressure. Four percent of firms were lowering prices, down from 14% raising them in July of 2014. Expectations, however, about the ability to raise prices improved. Twenty percent of firms were planning to raise prices, the most since December 2014.

Credit was a little more difficult to get as 5% reported trouble, up from 3% at the low. Thirty two percent of firms felt satisfied that their borrowing needs had been filled in the last three months, down from 35% March.

A reduced 20% reported government requirements as the largest single problem and a higher 22% were troubled most by taxes, still lower than a high of 27% in December. A stable 15% were challenged by the quality of labor. Nine percent reported insurance cost and availability as the largest problem, but a much higher 11% indicated poor sales as their biggest problem. A slightly lower 7 percent reported competition from large businesses as the biggest problem. A steady 5% reported the cost of labor was a big problem. It's been near that level since early in 2013 and inflation was indicated by only 2%, nearly the least since 2003.

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.