U.S. Small Business Optimism Remains High

The National Federation of Independent Business reported that its Small Business Optimism Index of 105.3 during February was down just slightly from January, but remained up 13.3% versus February 2016. It remained near the strongest level of optimism since December 2004.

Forty-seven percent of firms reported they were expecting the economy to improve, nearly the most since March 2002. Twenty-six percent of firms expected higher real sales in six months, up from 1% in October. Twenty-two percent of firms reported that now was a good time to expand the business, nearly the most since December 2004.

On the labor front, an easier 15% planned to increase employment. Finding employees was easier as 44% of firms indicated they had few or no qualified candidates to fill job openings, down from 52% just three months earlier. A lessened 26% percent of firms had to raise worker compensation, just off the expansion high of 30% in January. An easier 17% of firms planned to raise compensation in the next three months.

A lessened 26% of firms were planning to make capital outlays in the next 3-to-6 months. Three percent were planning to raise inventories, up from zero last year.

On the price inflation front, an easier 20% of businesses planned to raise average selling prices. Six percent of firms actually raised average selling prices last month versus none in 2016.

An increased 22% of firms indicated that taxes were the single most important problem, but a sharply lessened 15% reported that government requirements were the largest single problem, the least since 2011. A sharply higher 17% felt challenged by the quality of labor, and a slightly increased 12% of firms indicated that poor sales were the largest single problem. A higher 10% of firms reported insurance cost & availability as the largest hurdle. A higher 9% reported competition from large businesses as the largest problem, equaling the most of the expansion. An easier 5% 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.