U.S. Small Business Optimism Remains Steady & Strong

The National Federation of Independent Business reported that its Small Business Optimism Index held at 104.5 during May. The index remained up 11.4% from the level of 93.8 in May 2016.

An increased 39% of firms reported that they were expecting the economy to improve, but that remained down sharply from the December high of 50%. An improved 22% of respondents expected higher real sales, though that too was down from December's high of 31%. Twenty-three percent of firms reported that now was a good time to expand the business, up sharply from nine percent 12 months earlier.

On the labor front, 18% planned to increase employment, equaling the most since November 2006. Finding employees was difficult, however, as 51% of firms indicated they had few or no qualified candidates to fill job openings, up from 48% last May. Twenty-eight percent of firms had to raise worker compensation, up from 21% in November. A stable 18% of firms planned to raise compensation in the next three months.

A fairly steady 28% of firms were planning to make capital outlays in the next 3-to-6 months, but that was up from 23% one year earlier. One percent of firms were planning to raise inventories, up from none during all of last year.

On the inflation front, seven percent of firms actually raised average selling prices last month, up from one percent raising them last May. Twenty-one percent of businesses were planning to raise average selling prices, up from 16% twelve months earlier.

A fairly stable 22% of firms indicated that taxes were the single most important problem. A greatly lessened 13% reported that government requirements were the largest single problem, the least since 2010. Nineteen percent felt challenged by the quality of labor, up from the four percent low in 2010. A higher 11% of firms reported insurance cost &availability as the largest hurdle. Just nine percent of firms indicated that poor sales were the largest single problem, but a greatly lessened seven percent reported competition from large businesses as the largest problem. A higher 8% felt that cost of labor was the largest single problem, up from a low of 5% in February. Inflation was reported as the largest problem by a minimally increased two percent 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.