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Economy in Brief

U.S. Small Business Optimism Increases Sharply
by Tom Moeller  January 10, 2017

The National Federation of Independent Business reported that its Small Business Optimism Index surged 7.5% during December (11.1% y/y) to 105.8. It was the strongest level of optimism since December 2004. During all of last year, the optimism index eased to 95.3 from 96.1 in 2015.

A strengthened 50% of firms reported they were expecting the economy to improve, the most since March 2002. Another area of strength was 31% of firms expected higher real sales in six months, up from 11% in November. Twenty-three percent of firms reported that now was a good time to expand the business, an eleven-year high.

On the labor front, a stronger 16% planned to increase employment. Potential employees seemed easier to come by, however, as a greatly lessened 44% of firms indicated they had few or no qualified candidates to fill job openings. Hiring difficulty caused an increased 26% percent of firms to raise worker compensation. A sharply higher 20% planned to raise worker compensation, the most since December.

Fully 29% of firms were planning to make capital outlays in the next 3-6 months, the most since August 2014. A strengthened 4% were raising inventories now.

On the price inflation front, a sharply increased 24% of businesses were planning to raise average selling prices, the most since 2008. An increased 6% of firms actually raised average selling prices last month, versus none in Q3'16.

A higher 21% of firms indicated that taxes were the single most important problem, and a higher 19% reported that government requirements were the largest single problem. A reduced 12% felt challenged by the quality of labor, while a stable 12% of firms indicated that poor sales were the largest single problem. A reduced 8% of firms reported insurance cost & availability as the largest hurdle. A higher 9% reported competition from large businesses as the largest problem, but a lessened 5% felt that cost of labor was their largest single problem. Inflation as the largest problem was indicated by a reduced 2% of respondents, the most in 6 months.

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.

National Federation of Independent Business (SA, Net %) Dec Nov Oct Dec'15 2016 2015 2014
Small Business Optimism Index (1986=100) 105.8 98.4 94.9 95.2 95.3 96.1 95.6
Firms Expecting Economy To Improve 50 12 -7 -15 -5 -5 -5
Firms Expecting Higher Real Sales 31 11 1 7 5 8 11
Firms Reporting Now is a Good Time To Expand the Business (% of Firms) 23 11 9 8 10 12 10
Firms Planning to Increase Employment 16 15 10 15 11 12 10
Firms With Few or No Qualified Applicants For Job Openings 44 52 48 48 46 46 43
Firms Reporting That Credit Was Harder To Get 6 4 4 5 5 4 6
Firms Raising Average Selling Prices 6 5 2 -1 0 2 8
Firms Raising Worker Compensation 26 21 25 22 24 23 21
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