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Small Business Optimism Index Rises; Labor Shortage Still a Challenge

July 16, 2021, 07:11 AM
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The NFIB Small Business Optimism Index increased 2.9 points in June to 102.5, the first time the Index exceeded 100 since November 2020. Seven of the 10 Index components improved and three declined. The NFIB Uncertainty Index increased four points to 83.

“Small businesses optimism is rising as the economy opens up, yet a record number of employers continue to report that there are few or no qualified applicants for open positions,” said NFIB Chief Economist Bill Dunkelberg. “Owners are also having a hard time keeping their inventory stocks up with strong sales and supply chain problems.”

Other key findings include:

  • Owners expecting better business conditions over the next six months rose 14 points to a net negative 12 percent, an improvement but still in very negative territory.
  • Earnings trends over the past three months improved six points to a net negative 5 percent.
  • The net percent of owners raising average selling prices increased seven points to a net 47 percent (seasonally adjusted), the highest reading since January 1981.

As reported in NFIB’s monthly jobs report, 46 percent of owners reported job openings that could not be filled, a decrease of two points from May but still historically high and above the 48-historical average of 22 percent. Small employers have plans to fill open positions, job creation plans over the next three months rose to a net 28 percent, up one point.

Down from May’s report, 53 percent of owners reported capital outlays in the last six months. Of those making expenditures, 36 percent reported spending on new equipment, 23 percent acquired vehicles, and 14 percent improved or expanded facilities. Six percent of owners acquired new buildings or land for expansion and 11 percent spent money for new fixtures and furniture.

A net 9 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months. The net percent of owners expecting higher real sales volumes improved five points to a net 7 percent.

The net percent of owners reporting inventory increases rose 2 points to a net 1 percent. A net 11 percent of owners view current inventory stocks as “too low” in June, up three points from May and a historically high reading.

A record high reading, a net 11 percent of owners plan inventory investment in the coming months.

Unadjusted, 5 percent reported lower average selling prices and 54 percent reported higher average prices. Price hikes were the most frequent in wholesale (82 percent higher, 4 percent lower), retail (63 percent higher, 1 percent lower), and manufacturing (62 percent higher, 5 percent lower). Seasonally adjusted, a net 44 percent plan price hikes, up one point from May.

A net 39 percent (seasonally adjusted) reported raising compensation, a record high. A net 26 percent plan to raise compensation in the next three months.

Eight percent of owners cited labor costs as their top business concern and 26 percent said that labor quality was their top business problem, unchanged from May but remaining the top overall concern.

The frequency of reports of positive profit trends improved six points to a net negative 5 percent, driven primarily by the increase in sales. Among owners reporting lower profits, 35 percent blamed weaker sales, 25 percent cited a rise in the cost of materials, 9 percent cited labor costs, 9 percent cited lower prices, 8 percent cited the usual seasonal change, and 5 percent cited higher taxes or regulatory costs. For owners reporting higher profits, 66 percent credited sales volumes, 13 percent cited usual seasonal change, and 9 percent cited higher prices.

Three percent of owners reported that all of their borrowing needs were not satisfied. Twenty-five percent reported all credit needs were met and 59 percent said they were not interested in a loan. A net 2 percent reported that their last loan was harder to get than in previous attempts.

One 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 1 percent.

The average rate paid on short maturity loans was 4.9 percent, unchanged from May. Twenty-three percent of all owners reported borrowing on a regular basis.

Click here to view the full report.

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