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Economy in Brief

U.S. Small Business Optimism Improves
by Tom Moeller  November 8, 2016

The National Federation of Independent Business reported that its Small Business Optimism Index increased 0.9% during October to 94.9 following two months of slight decline. Optimism remained down 5.4% versus its peak in December 2014.

An improved net 9% of firms reported that now was a good time to expand the business, but the figure has moved sharply lower since its December 2014 peak. A lessened -7% of firms were expecting the economy to improve. This figure had moved steadily higher since its February low. A reduced 1% of firms expected higher real sales in six months, also down sharply versus a late 2014 high.

Despite last month's expectation that the economy would improve, a stable 10% expected to raise employment, down from 15% this past December. Twenty eight percent had positions they were unable to fill right now, a figure that's been fairly steady since Q2'15. Also stable at 27% was the percentage of firms expecting capital expenditures. That percentage had been moving steadily higher May. A higher 2% of firms expected to lift inventory levels, which was a rebound from expectations of sharp inventory decumulation in October.

On the pricing front, an improved 2% of firms are currently raising prices. That was higher m/m, but still well below the July 2014 high of 12%. A lessened 15% were planning to raise prices, and it's been moving down since early last year. Worker compensation improved slightly as 25% of firms were raising it, a figure that's been moving sideways this year. Moving sharply higher to 19%, however, was the percentage of firms which planned to raise compensation in the next three months, its highest level since December.

Twenty-one percent of firms indicated that taxes were the single most important problem, and a higher 21% reported that government requirements were the largest single problem. Fifteen percent felt challenged by the quality of labor, while 11% of firms indicated that poor sales were the largest single problem. A sharply increased 10% reported insurance cost & availability as the largest hurdle. A reduced 5% reported the cost of labor was the biggest problem, and a stable 8 percent reported competition from large businesses as the largest problem. Inflation as the largest problem was indicated by a lower 1% percent of respondents, the least since November.

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 %) Oct Sep Aug Oct'15 2015 2014 2013
Small Business Optimism Index (1986=100) 94.9 94.1 94.4 96.0 96.1 95.6 92.4
Firms Reporting Now is a Good Time To Expand the Business 9 7 9 13 11 10 7
Firms Expecting Higher Real Sales In Six Months 1 4 -1 6 8 11 4
Firms Expecting Economy To Improve -7 0 -12 -6 -5 -5 -15
Firms Planning to Increase Employment 10 10 9 11 12 10 6
Firms With Few or No Qualified Applicants For Job Openings 48 48 48 48 46 43 39
Firms Reporting That Credit Was Harder To Get 4 5 4 3 4 6 6
Firms Raising Average Selling Prices 2 -1 3 1 2 8 2
Firms Raising Worker Compensation 25 22 24 22 23 21 15
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