U.S. Small Businesses Remain Optimistic and Increase Prices

The Small Business Optimism Index from the National Federation of Independent Business for January increased 1.9% to 106.9 (+0.9% y/) following a 2.4% December decline. The level of optimism was up from 95.3 during all of 2016.

A record high 32% of firms thought that now was a good time to expand the business. Forty-one percent of firms expected the economy to improve. That was up versus a Q3'17 low of 31%, but was lower than 48% one year earlier. Twenty percent of businesses were planning to increase employment, stable m/m but up sharply y/y. A lessened 49% indicated that there were few or no qualified candidates for job openings.

Pricing pressure is picking up as 11% of firms raised average selling prices, the most since July 2014. Twenty-three percent of firms are planning to raise prices, up from 17% during all of 2015 and 2016.

Offering higher wages was necessary to meet staffing difficulties. A near-record 24% of respondents were planning to raise worker compensation in the future. Thirty-one percent of firms actually raised worker compensation, up from 27% during all of last year.

A lessened 25% of respondents expected higher real sales, and a roughly stable 41% expected the economy to improve. Finding the financial resource to expand the business was relatively easy as just three percent of businesses reported difficulties in obtaining credit.

This survey inquires about problems facing small business. Labor quality is a major issue for an increased 22% of firms, the most since 1998. Government issues became less worrisome. Taxes were indicated by a sharply reduced 19% as the biggest problem and government requirements were troublesome by a lessened 16% of businesses. Insurance costs and availability were mentioned by a stable 10% of firms. Labor costs, though, are a major concern for a low and steady 6% of companies, though that was up from three percent in 2012. Poor sales were a concern of nine percent of firms, down from 12% in all of last year. Competition from large firms was the biggest problem for a stable nine percent of small firms. Inflation was mentioned by only one percent of firms. Similarly, just one percent report that financial conditions and interest rates are a problem.

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.