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Economy in Brief

U.S. Small Business Optimism Improves
by Tom Moeller  February 14, 2017

The National Federation of Independent Business reported that its Small Business Optimism Index ticked 0.1% higher during January (12.8% y/y) to 105.9 following a 7.5% December surge. It was the strongest level of optimism since December 2004.

Forty-eight percent of firms reported they were expecting the economy to improve, nearly the most since March 2002. Also 29% of firms expected higher real sales in six months, up from 1% in October. A stronger 25% of firms reported that now was a good time to expand the business, the most since December 2004.

On the labor front, a stronger 18% planned to increase employment. Potential employees seemed harder to come by as 47% of firms indicated they had few or no qualified candidates to fill job openings, up from 46% during all of 2015 and 2016. Hiring difficulty caused an increased 30% percent of firms to raise worker compensation, the most since February of 2007. A diminished 18%, however, of firms planned to raise compensation in the next three months.

A slightly lessened 27% of firms were planning to make capital outlays in the next 3-to-6 months. Two percent were planning to raise inventories, up from zero last year.

On the price inflation front, a still high 21% of businesses were planning to raise average selling prices. Five percent of firms actually raised average selling prices last month, versus none in 2016.

A stable 21% of firms indicated that taxes were the single most important problem and a steady 19% reported that government requirements were the largest single problem. A higher 15% felt challenged by the quality of labor, while a lessened 10% of firms indicated that poor sales were the largest single problem. A stable 8% of firms reported insurance cost & availability as the largest hurdle. A slightly reduced 8% reported competition from large businesses as the largest problem. A much higher 7% felt that cost of labor was their largest single problem. Inflation as the largest problem was indicated by a stable 2% 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.

National Federation of Independent Business (SA, Net %) Jan Dec Nov Jan'16 2016 2015 2014
Small Business Optimism Index (1986=100) 105.9 105.8 98.4 93.9 95.3 96.1 95.6
Firms Expecting Economy To Improve 48 50 12 -21 -5 -5 -5
Firms Expecting Higher Real Sales 29 31 11 3 5 8 11
Firms Reporting Now is a Good Time To Expand the Business (% of Firms) 25 23 11 10 10 12 10
Firms Planning to Increase Employment 18 16 15 11 11 12 10
Firms With Few or No Qualified Applicants For Job Openings 47 44 52 45 46 46 43
Firms Reporting That Credit Was Harder To Get 5 6 4 5 5 4 6
Firms Raising Average Selling Prices 5 6 5 -4 0 2 8
Firms Raising Worker Compensation 30 26 21 27 24 23 21
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