- The NFIB’s small business optimism index rose 1.6 points to 104.3 in January, rebounding from a two point decline in December. The reading came in ahead of market expectations that called for a 103.5 reading.
- Beneath the headline, six of the ten subcomponents rose on the month, two declined and two remained unchanged. Gains were led by an improvement in firms’ expectations of higher real sales rising seven points (from 16 to 23) – its highest reading since May last year. Also up on the month were firms’ earnings outlook, with the net share of firms reporting an improvement rising 5 points (from -8% to -3%). Firms thinking that now is a good time to expand also advanced (up three points to 28%). Current inventory was up one point (from -4% to -3%) and firms planning to increase inventories also rose one point to 4%.
- Firms expecting the economy to improve however, pulled back by two points to 14%, while those expecting credit conditions to ease declined by one point to a net -4%. Firms expecting to make capital outlays remained unchanged relative to the previous month.
- Labor market indicators were generally mixed. Firms planning to increase employment was unchanged at 19%, but those planning to raise worker’s compensation was up seven points to 36% – the highest since January of last year and an historically high figure. Job creation climbed as well, with an average addition of 0.49 workers per firm, the highest level since March 2019. Finding qualified workers remains a top concern however, as 26% of respondents cited this as their number one problem and 49% reported few or no qualified applicant for open positions. Additionally, 37% of firms (up four points) had open positions they were not able to fill.
Key Implications
- Small business confidence recovered from its dip in December to kick-off the New Year on a positive note. Overall, America’s small businesses are doing well. Firms are expecting higher sales which has boosted their earnings outlook and expansion plans. The more upbeat outlook may be a benefit of the cooling of trade tensions between the U.S. and China as both countries work towards resolving the issues which lead to a near two year trade skirmish.
- While small businesses may be looking to expand, a tight labor market may tap the brakes, as filling positions become more difficult. What’s more, firms are having to increase compensation to attract workers. With the U.S. unemployment rate at a near 50-year low, this problem seems set to continue for the foreseeable future and firms may continue to face issues of finding the skills they need to drive production.
