U.S. Small Business Optimism Strengthens

The National Federation of Independent Business reported that its Small Business Optimism Index jumped 1.6 points to 105.2 during July and reversed several months of decline. The latest level was the highest since February.

A strengthened 37% of firms reported that they were expecting the economy to improve. That remained down significantly, however, from the December high of 50%. A higher 22% of respondents expected higher real sales, and that reversed June's decline, but also was down sharply from December's high of 31%. Twenty-three percent of firms reported that now was a good time to expand the business, up from eight percent last June. Moreover, each of these component series was up sharply y/y.

On the labor front, an increased 19% planned to raise employment. Finding employees became more difficult. Fifty-two percent of firms indicated they had few or no qualified candidates to fill job openings, up from February's low of 44%. Twenty-seven percent of firms raised worker compensation versus a high of 30% in January. A lessened 16% of firms planned to raise compensation in the next three months, the least since November.

Twenty-eight percent of firms were planning to make capital outlays in the next 3-to-6 months, down modesty from June's ten-year high of 30%. A sharply higher five percent of firms planned to raise inventories, up from one percent in May and none in 2016.

On the inflation front, a higher eight percent of firms actually raised average selling prices last month, the most in three years. The percentage of firms planning to raise average selling prices also rose to 23%. That was up from 14% twelve months earlier.

A lessened 21% of firms indicated that taxes were the single most important problem. An easier 16% reported that government requirements were the largest single problem. A sharply higher 19% felt challenged by the quality of labor, up from the four percent low in 2010. A stable nine percent of firms reported insurance cost & availability as the largest hurdle. A lower eight percent of firms indicated that poor sales were the largest single problem, and a steady eight percent reported competition from large businesses as the largest problem. A higher eight percent felt that cost of labor was the largest single problem, equaling the most since last August. Inflation was reported as the largest problem by a fairly steady 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.