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Small Business Optimism Starts New Year Solid

February 14, 2020, 07:05 AM
Filed Under: Economy

The NFIB small business Optimism Index started the New Year in the top 10 percent of all readings in the 46-year history of the survey, rising 1.6 points to 104.3 in the month of January. Six of the 10 Index components improved, two declined and two were unchanged, with the Uncertainty Index edging up slightly. Owners expecting better business conditions dipped slightly, but sales expectations and earnings trends improved significantly.

“2020 is off to an explosive start for the small business economy, with owners expecting increased sales, earnings, and higher wages for employees,” said NFIB Chief Economist William Dunkelberg. “Small businesses continue to build on the solid foundation of supportive federal tax policies and a deregulatory environment that allows owners to put an increased focus on operating and growing their businesses.”

The net percent of owners expecting higher real sales volumes increased 7 points to 23 percent with owners a bit more certain of future sales growth prospects. A net 7 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down 2 points from December.

The NFIB Uncertainty Index moved up 1 point from December to 81, but well below the spike to 86 seen in last January’s Index, following the government shutdown. A net 14 percent of owners expect better business conditions.

The frequency of reports of positive profit trends reversed half of December’s decline, increasing 5 points in January. Thirty-three percent of those reporting weaker profits blamed weak sales, 27 percent blamed usual seasonal change, and 8 percent cited labor costs, 6 percent cited materials costs, and 4 percent cited price changes. For those reporting higher profits, 61 percent credited sales volumes. 17 percent credited usual seasonal change.

As reported in last week’s NFIB’s monthly jobs report, new job creation jumped in January, with an average addition of 0.49 workers per firm, the highest level since March 2019. Twenty-six percent of owners reported finding qualified workers as their number one problem, 1 point below August’s record high. Fifty-six percent reported hiring or trying to hire (up 3 points), but 49 percent reported few or no “qualified” applicants for the positions they were trying to fill.

Historically high percentages of owners plan to raise worker compensation, as they seek to fill open positions. Seasonally adjusted, a net 36 percent reported raising compensation (up 7 points) and a net 24 percent plan to do so in the coming months, unchanged from December. Eight percent cited labor costs as their top problem.

“Finding qualified labor continues to eclipse taxes or regulations as a top business problem. Small business owners will likely continue offering improved compensation to attract and retain qualified workers in this highly competitive labor market,” Dunkelberg concluded. “Compensation levels will hold firm unless the economy weakens substantially as owners do not want to lose the workers that they already have.”

The net percent of owners raising average selling prices rose 1 point to a net 15 percent, seasonally adjusted, continuing a measured upward trend since September. Price hikes were most frequent in retail (24 percent higher, 6 percent lower) and wholesale (20 percent higher, 8 percent lower). Seasonally adjusted, a net 24 percent plan price hikes (up 4 points).

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