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Economy in Brief

U.S. Small Business Optimism Strengthens
by Tom Moeller  December 10, 2019

The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index rose 2.2% (-0.1% y/y) to 104.7 during November. It was the highest level since July. Despite the increase, the reading remained 3.8% below the high last August.

Strength in optimism last month reflected an increase in the percentage of firms indicating that now was a good time to expand the business. The jump to 29% from 23% brought it to the highest level in six months. The percentage of firms planning to increase employment also rose to a four month high of 21%. The percentage of firms planning to make capital outlays rose to 30%, a six-month high.

An improved 13% of respondents expected the economy to improve. That was the strongest in four months but remained down versus the 48% high in January 2017. A lessened 13% of firms expected higher real sales, significantly below the November 2017 high of 34% and the least since November 2016. An increased 30% of firms expected to make capital outlays, but that remained below the 33% last August.

The ability to find qualified workers has become somewhat easier. A steady 53% of firms found few or no qualified candidates for job openings. That's down from the record 57% reached three months earlier. The percentage has been moving sideways since the middle of last year.

Increased pay was needed to hold/find workers. A near-record 26% of firms planned to raise worker earnings, up from 22% in October. A steady 30% of firms were currently raising worker compensation. That remained down from the August 2018 high of 37%.

An increased 22% of firms were planning to raise average selling prices, the most since June. Current pricing improved just modestly as 12% of firms were raising prices now, the most in four months but below the 19% in May of last year.

Credit remained easy to get. Only three percent of firms reported trouble obtaining financing. Sixteen percent of firms reported difficulty near the end of the recession in 2009. A steady three percent of firms were not satisfied that their borrowing needs were met in the last three months.

The small business survey inquires about additional issues facing small business. A higher 26% reported a problem with the quality of labor but a lessened 14% indicated that taxes were the largest problem. Government requirements were worrisome by a steady13% of respondents. That remained below the September 2013 high of 24%. A sharply lower four percent of firms reported the cost of labor as the most significant problem, down from the record 11% in June. Competition from large businesses was felt by a lessened nine percent of businesses as the biggest problem. Insurance cost/availability concerned a stable nine percent of respondents. Poor sales were the biggest problem for a steady eight percent of businesses, down from 32% in 2009. Financial & interest rate problems worried just two percent of respondents. Inflation concerned a lessened one percent of respondents 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) Nov Oct Sep Nov'18 2018 2017 2016
Small Business Optimism Index (1986=100) 104.7 102.4 101.8 104.8 106.7 104.9 95.3
Firms Expecting Economy to Improve 13 10 9 22 32 39 -5
Firms Expecting Higher Real Sales 13 17 16 24 26 23 5
Firms Reporting Now Is a Good Time to Expand the Business 29 23 22 29 30 23 10
Firms Planning to Increase Employment 21 18 17 22 21 18 11
Firms With Few or No Qualified Applicants for Job Openings (%) 53 53 50 53 51 49 46
Firms Expecting to Make Capital Outlays 30 29 27 30 29 28 26
Firms Reporting That Credit Was Harder to Get 3 4 4 5 4 4 5
Firms Raising Average Selling Prices 12 10 8 16 15 7 0
Firms Raising Worker Compensation 30 30 29 34 33 27 24
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