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Small Business Optimism Rebounds, Exceeding Historical Average

September 15, 2020, 07:15 AM
Filed Under: Economy

The NFIB Optimism Index increased 1.4 points in August to 100.2, a reading slightly above the historical 46-year average. Seven of the 10 Index components improved, two declined and one was unchanged. The NFIB Uncertainty Index increased two points in August to 90, the second-highest reading since 2017. The record reading of 100 was reached in November 2016.

“Small businesses are working hard to recover from the state shutdowns and effects of COVID-19,” said NFIB Chief Economist Bill Dunkelberg. “We are seeing areas of improvement in the small business economy, as job openings and plans to hire are increasing, but many small businesses are still struggling and are uncertain about what the future will hold.”

Other key findings include:

  • Earnings trends over the past three months improved seven points to a net negative 25 percent reporting higher earnings.
  • Job openings increased three points to 33 percent of firms with at least one unfilled position.
  • The percent of owners thinking it’s a good time to expand increased one point to 12 percent.
  • Real sales expectations in the next three months decreased two points to a net 3 percent.

As reported in NFIB’s monthly jobs report, job creation plans increased three points to a net 21 percent, an unprecedented recovery from April’s reading of 1 percent. Construction job growth continues to be strong but owners in the sector are having a particularly hard time finding skilled employees. The manufacturing sector’s employment remained strong but not as strong as seen in previous months. The service sector is the missing link and the key to stronger job growth going forward.

Forty-seven percent of owners reported capital outlays in the last six months, down 2 points from July and 16 points below January’s level. The low levels of investment are contributing to low GDP growth. Twenty-six percent plan capital outlays in the next few months, unchanged from July’s reading.

Of those making expenditures, 34 percent reported spending on new equipment, 21 percent acquired vehicles, and 12 percent improved or expanded facilities. Six percent acquired new buildings or land for expansion and 9 percent spent money for new fixtures and furniture.

A net negative 15 percent of all owners reported higher nominal sales in the past three months, up 13 points from July. The net percent of owners expecting higher real sales volumes decreased 2 points to a net 3 percent of owners.

The net percent of owners reporting inventory increases improved two points to a net negative 9 percent. It’s hard to reduce inventory for small businesses when there are few or no customers. The net percent of owners viewing current inventory stocks as “too low” increased two points to 3 percent. The net percent of owners planning to expand inventory holdings increased from July by two points to a net 6 percent.

The net percent of owners raising average selling prices rose three points to a net 1 percent seasonally adjusted. Sixteen percent reported lower average selling prices and 16 percent reported higher average prices.

Price hikes were the most frequent in wholesale (24 percent higher, 22 percent lower). Price cuts were the most frequent in retail (11 percent higher, 24 percent lower). Seasonally adjusted, a net 16 percent plan price hikes.

Seasonally adjusted, a net 18 percent reported raising compensation. The percent of owners raising compensation remains well below the 36 percent reading in February before COVID-19 policies were implemented. A net 14 percent plan to do so in the coming months and 9 percent cited labor costs as their top problem.

Twenty-one percent of owners selected “finding qualified labor” as their top business problem, with 41 percent in construction where the unavailability of qualified workers is slowing new home production.

The frequency of reports of positive profit trends rose 7 points to a net negative 25 percent reporting quarter on quarter profit improvement. Among owners reporting weaker profits, 55 percent blamed weak sales, 8 percent cited price changes, 4 percent cited material costs, and 3 percent cited labor costs. For owners reporting higher profits, 65 percent credited sales volumes.

Three percent of owners reported that all their borrowing needs were not satisfied. Thirty-one percent reported all credit needs were met and 53 percent said they were not interested in a loan. A net 1 percent reported their last loan was harder to get than in previous attempts.

Two percent of owners reported that financing was their top business problem. The net percent of owners reporting paying a higher rate on their most recent loan was negative 5 percent.

Click here to view the NFIB Small Business Economic Trends Survey.

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