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Economy in Brief

U.S. Small Business Optimism Improves
by Tom Moeller  May 14, 2019

The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index increased to 103.5 during April following little change in March. It was the highest reading since December. The index gained 1.7% m/m, up for the third straight month but down 1.2% y/y.

An improved 25% of firms thought that now was a good time to expand the business, off its high of 34% in August of last year. The percentage expecting higher real sales also rose slightly to 20%, but that remained down from the November 2017 high of 34%. An improved 13% of respondents expected the economy to improve, but that remained down from a high of 48% in January 2017. Twenty-seven percent of firms expected to make capital outlays, unchanged for the third straight month, and still below the high of 33% last August.

Expected pricing power fell sharply last month as 21% of firms were planning to raise prices. That was down m/m and lower than November's ten-year high of 29%. Current pricing pressure improved. A net 13% of firms were raising average selling prices, up slightly m/m, but still below the 19% high last May.

Labor market readings showed modest m/m improvement. The 20% of respondents planning to increase employment was the most this year, but remained below the record 26% in August. The 49% of firms that were finding few or no qualified candidates for job openings was down m/m and fairly steady y/y.

Pressure to raise worker compensation rose m/m as a higher 34% of firms were raising worker pay. The 20% that were planning to raise compensation was steady m/m, but down from the near-record 25% in November.

Credit became easier to get as a lessened four percent reported trouble obtaining financing, roughly equaling the percentage of the last for years.

The small business survey inquires about additional issues facing small business. A higher 24% reported problems with the quality of labor. That was only slightly below November's record 25%. A low 16% indicated that taxes were the largest problem, down from a December 2014 high of 27%. Government requirements were worrisome to a steady 15% of respondents, below the September 2013 high of 24%. Eight percent of firms reported the cost of labor as the most significant problem, down February's high of ten percent but its been trending higher since 2012. Poor sales eased to nine percent of firms as the biggest problem, but higher than five percent in September. Competition from large businesses held at nine percent as the biggest problem. Insurance costs/availability worried a low nine percent of respondents. Financial & interest rate problems worried two percent of respondents. A record low one percent reported inflation as the biggest 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.

National Federation of Independent Business (SA, Net % of Firms) Apr Mar Feb Apr'18 2018 2017 2016
Small Business Optimism Index (1986=100) 103.5 101.8 101.7 104.8 106.7 104.9 95.3
Firms Expecting Economy to Improve 13 11 11 30 32 39 -5
Firms Expecting Higher Real Sales 20 19 16 21 26 23 5
Firms Reporting Now Is a Good Time to Expand the Business 25 23 22 27 30 23 10
Firms Planning to Increase Employment 20 18 16 16 21 18 11
Firms With Few or No Qualified Applicants for Job Openings (%) 49 54 49 50 51 49 46
Firms Expecting to Make Capital Outlays 27 27 27 29 29 28 26
Firms Reporting That Credit Was Harder to Get 4 6 6 5 4 4 5
Firms Raising Average Selling Prices 13 12 13 14 15 7 0
Firms Raising Worker Compensation 34 33 31 33 33 27 24
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