U.S. Small Business Optimism Wanes

The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index declined 1.5% (-5.2 % y/y) to 103.1 during August and reversed its July improvement. The index level was at the lowest level since March.

A greatly lessened 12% of respondents expected the economy to improve. That was down from a high of 48% in January 2017. A lower 17% expected higher real sales, down from the November 2017 high of 34%. A stable 26% thought that now was a good time to expand the business versus a high of 34% twelve months earlier. Twenty-eight percent of firms expected to make capital outlays versus a high of 33% last August.

A net 11% of firms were raising average selling prices versus the May 2018 high of 19%. Expected pricing power fell sharply last month. Just 17% of firms were planning to raise prices, down from 23% in June and a November 2018 high of 29%.

Labor market readings were mixed last month. The 20% of respondents planning to increase employment was reduced slightly m/m and remained below the record 26% reached last August. The ability to find qualified workers, however, became more difficult. A record 57% of firms were finding few or no qualified candidates for job openings.

Despite this difficulty, 29% of firms were currently raising worker compensation, down from the 36% high this past January. Nineteen percent of firms planned to raise worker pay. That remained below the November 2018 high of 25%.

Credit remained quite easy to get last month. Only one percent of firms reported trouble obtaining financing versus three percent in July.

The small business survey inquires about additional issues facing small business. A record 27% reported a problem with the quality of labor, but a lower 14% indicated that taxes were the largest problem. Government requirements were worrisome by a reduced 14% of respondents, below the September 2013 high of 24%. Nine percent of firms reported the cost of labor as the most significant problem and nearly equaled June's record 10%. Competition from large businesses was felt by a greatly reduced eight percent of businesses as the biggest problem. Insurance costs/availability concerned only nine percent of respondents. Poor sales were the biggest problem for a slightly higher nine percent of businesses. Financial & interest rate problems worried a steady two percent of respondents. Inflation concerned only one percent of respondents as the biggest problem, an expansion low.

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.