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Economy in Brief

U.S. Small Business Optimism Strengthens in 2017
by Tom Moeller  January 9, 2018

Last year, the Small Business Optimism Index from the National Federation of Independent Business rose to a record 104.8 (1986=100). For December alone, the index eased 2.4% to 104.9 and was 0.9% below one year earlier.

A stable 27% of firms indicated last month that now was a good time to expand the business, a near-record. For all of last year, the figure was a record 23%. There was a problem, however, finding workers to do so. A record 54% of respondents indicated that there were few or no qualified candidates for job openings. As a result, a lessened 20% were planning to increase employment.

Offering higher wages was necessary to meet the staffing difficulties. Twenty-seven percent of firms actually raised worker compensation last year, the most since 2000. A near-record 23% of respondents, however, were planning to raise worker compensation in the future.

The economic outlook remained good, but somewhat more cautious. A slightly lower 28% of respondents expected higher real sales and a weaker 37% expected the economy to improve. Finding the financial resource to expand the business was relatively easy as only three percent of businesses reported difficulties in obtaining credit.

Pricing pressure in 2017 picked up as seven percent of firms raised average selling prices, a three-year high. For December alone, eight percent of firms raised prices, up from six percent in December 2016. Twenty-one percent of firms are planning to raise prices in the period ahead, the most since 2008.

This survey inquires about problems facing small business. Government issues are the most widespread. Taxes are the biggest problem for a stable 21% of firms, though government requirements burdened a lessened 16% of firms in December. Labor quality is a major issue for an increased 19% of firms, up from twelve percent one year earlier. Insurance costs and availability are mentioned by a stable 10% of firms. Labor costs, though, are a major concern for a low and steady 6% of companies. Poor sales were a concern of just eight percent of firms, down from 12% in all of last year. This compares to 32% during 2009. Competition from large firms is the biggest problem for a stable nine percent of small firms. Inflation is mentioned by just 2% of firms. Similarly, just one percent report that financial conditions and interest rates are a problem.

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) Dec Nov Oct Dec'16 2017 2016 2015
Small Business Optimism Index (1986=100) 104.9 107.5 103.8 105.8 104.8 95.3 96.2
Firms Expecting Economy To Improve 37 48 32 50 39 -5 -5
Firms Expecting Higher Real Sales 28 34 21 31 23 5 8
Firms Reporting Now is a Good Time To Expand the Business 27 27 23 23 23 10 12
Firms Planning to Increase Employment 20 24 18 16 18 11 12
Firms With Few or No Qualified Applicants For Job Openings (%) 54 44 52 44 49 46 46
Firms Reporting That Credit Was Harder To Get 3 4 4 6 4 5 4
Firms Raising Average Selling Prices 8 10 8 6 7 0 2
Firms Raising Worker Compensation 27 27 27 21 27 24 23
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