U.S. Small Businesses Optimism Is Driven Higher by Improved Sales Expectations and Low Inventories

The National Federation of Independent Business reported that its Small Business Optimism Index recovered to 93.4 during March and made up most of its February decline to 91.4. Despite the latest increase, small business optimism did not beak away from the sideways trend of the last nine months.

A recovery in sales expectations during the next six months provided the lift to last month's overall index. Inventories were reported as too low by a greatly increased number of firms and a few more businesses expected higher sales in six months. The percentage of firms indicating that now was a good time to expand the business recovered February's decline. Offsetting these gains was a sharp decline in the number of firms planning to raise employment and a lessened number looking to raise capital expenditures. The percentage of firms with positions they were not able to fill right now has been moving roughly sideways for the last six months. The percentage looking to raise capital expenditures also has been trending sideways for most of the last year.

A reduced 19% of firms planned to raise average selling prices, and the figure has trended sideways for a year. An increased 9% of firms were raising them now, the most since August 2012. A stable 14% planned to increase worker compensation, the most of the economic recovery.

The most important problems faced by small business were government requirements (21%), taxes (21%), poor sales (14%), insurance cost & availability (10%), quality of labor (9%), competition from large businesses (8%), cost of labor (5%), inflation (3%) and financial & interest rates (2%).

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.