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Economy in Brief

U.S. Small Business Optimism Highest Since 1983
by Carol Stone, CBE  December 12, 2017

Small business optimism in the U.S. rose 3.7 points in November to 107.5 (1986=100), the second highest reading of this index in the 44-year history of the survey conducted by the National Federation of Independent Business; the only reading higher was 108.0 in July 1983. The November number is up 9.2% from a year ago. There were gains in several of the index components and other survey questions, and a couple of those had quite sizable movements.

Perhaps most notable, 48% of firms expect the economy to improve, up 16 points from October's reading and 36 points from November 2016. Higher sales volume is expected by 34% of firms, compared with 21% in October and just 11% a year ago. Twenty-four percent plan to increase employment, up 6 points from October and 9 points from a year ago. There was a four-point improvement in the share of firms believing that now is a good time to expand, reaching 27% and up from just 11% in November 2016.

Other survey items moved more moderately. Selling price increases remain modestly positive, with 10% of firms raising them in November, up from 8% in October and 5% a year ago. This is, though, the largest share raising prices since July 2014. More firms plan to raise prices, 23%, up from October's 22% and the largest since 24% in December 2016. Twenty-seven percent raised worker compensation in recent months, the same amount as in October and up from 21% a year ago; the number planning to raise compensation decreased, however, to 17% from 21% the previous month, although it was a bit firmer than the 15% a year ago. Labor supply seemed less constrained in November, with 44% of firms reporting few or no qualified applicants for openings, down from 52% in October and in the year-ago month. Credit remained available, with just 4% of firms reporting more constrained credit conditions, the same as the month before and the year-ago month.

This survey inquires about problems facing small business. Government issues are the most widespread: taxes are the biggest problem for 22% of firms, up from 21% in October and 19% in November 2016, while government requirements burdened 16% of firms in November, up from 14% in October and down from 18% a year ago. Labor quality is a major issue for 18% of firms, down from 20% in October and up from 16% a year ago; labor costs, though, are a major concern for just 7% of companies, up slightly from 6% the month before and the year before. Poor sales bother just 11% of firms, a bit more than October's 10%, but less than 12% a year ago; these compare to 32% during the slow periods of 2009 and 31% in 2010. Competition from large firms is the biggest problem for 8% of small firms, up from 7% a month ago and a year ago. As might be inferred from the current environment, inflation is mentioned by just 3% of firms, up from 2% in October and the same as the 3% a year ago. Similarly, just a small number report that financial conditions and interest rates are problematic, 2% in November and in the month-ago and year-ago periods. Insurance costs and availability are mentioned by 10% of firms in the November tally, down from 11% in October and the same as the year-ago 10%.

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 % of Firms) Nov Oct Sep Nov'16 2016 2015 2014
Small Business Optimism Index (1986=100) 107.5 103.8 103.0 98.4 95.3 96.1 95.6
Firms Expecting Economy To Improve 48 32 31 12 -5 -5 -5
Firms Expecting Higher Real Sales 34 21 15 11 5 8 11
Firms Reporting Now is a Good Time To Expand the Business 27 23 17 11 10 12 10
Firms Planning to Increase Employment 24 18 19 15 11 12 10
Firms With Few or No Qualified Applicants For Job Openings (%) 44 52 49 52 46 46 43
Firms Reporting That Credit Was Harder To Get 4 4 6 4 5 4 6
Firms Raising Average Selling Prices 10 8 6 5 0 2 8
Firms Raising Worker Compensation 27 27 25 21 24 23 21
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