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Economy in Brief

U.S. Small Businesses Optimism Strengthens Dramatically
by Tom Moeller  June 12, 2018

The National Federation of Independent Business (NFIB) indicated that its Small Business Optimism Index increased to 107.8 during May following two months near 104.8. It was the strongest reading since the third quarter of 1983.

A record 34% of firms indicated that now was a good time to expand the business. A stronger 30% of firms planned to make capital outlays, the most in nine months. A higher 37% of firms expected the economy to improve, the most in three months; but that remained down below the 2017 average of 39%. A greatly increased 31% of firms were expecting higher real sales, the most in six months. Eighteen percent of businesses were planning to increase employment. That was up m/m but still well below the 24% November high. Meanwhile, a lessened 48% indicated that there were few or no qualified candidates for job openings, down from the December high of 54%.

Pricing pressure strengthened as a net 19% of firms were raising average selling prices, the most since September 2008. Twenty-six percent of firms were planning to raise prices, also a ten year high. A record 35% of firms increased worker compensation, but a lower 20% of businesses were planning to raise compensation.

Finding the financial resources to expand business remained relatively easy. A stable five percent of businesses reported difficulties in obtaining credit, up from three percent during the first quarter.

This survey inquires about problems facing small business. The most pressing problem in May continued to be labor quality as a near-record 23% indicated a problem, up from four percent in 2010. A lower six percent of firms reported the cost of labor as the most significant problem. Government requirements became much less worrisome at 13%, down from 22% in 2015. A still-low 18% indicated that taxes were the largest problem, down from a December 2014 high of 27%. Competition from large businesses remained high at 10%, and insurance costs/availability worried a lessened 10%. Poor sales remained at an expansion low of 8% while financial & interest rate problems (1%) remained negligible. Price inflation problems strengthened to a six month high of three percent reporting a 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) May Apr Mar May'17 2017 2016 2015
Small Business Optimism Index (1986=100) 107.8 104.8 104.7 104.5 104.9 95.3 96.1
Firms Expecting Economy to Improve 37 30 32 39 39 -5 -5
Firms Expecting Higher Real Sales 31 21 20 22 23 5 8
Firms Reporting Now Is a Good Time to Expand the Business 34 27 28 23 23 10 12
Firms Planning to Increase Employment 18 16 20 18 18 11 12
Firms With Few or No Qualified Applicants for Job Openings (%) 48 50 47 51 49 46 46
Firms Reporting That Credit Was Harder to Get 5 5 4 3 4 5 4
Firms Raising Average Selling Prices 19 14 16 7 7 0 2
Firms Raising Worker Compensation 35 33 33 28 27 24 23
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