- The NFIB’s small business optimism index rose by 2.4 points to 98.2 in March, marking the second consecutive monthly improvement. The reading was a hair higher than market expectations for a 98.0 print.
- Gains were broad-based under the hood, with seven of the ten subcomponents improving on the month and only three falling.
- Expectations regarding an improvement in the economy (up 11 points to -8%), higher real sales (up 8 points to 0%) and the belief that now is a good time to expand up (5 points to 11%) all recorded sizable gains in March.
- Labor market indicators were also broadly positive. The share of firms planning to increase employment rose by four points to 22%, while unfilled job openings rose by two points to 42%, setting a new record high for the second month in a row. The share of firms increasing worker compensation rose three points to 28%, while the share of those planning to do so fell two points to a still-decent 17%. This was accompanied by an increase in the share of firms raising average selling prices (up one point to 26% – the highest level since 2008).
- Among the remaining sub-indicators, earnings trends, current inventory and plans to make capital outlays all eased on the month. The uncertainty sub-index, meanwhile, rose six points to a reading of 81. According to the NFIB, this was primarily driven by owners being more uncertain about whether it is a good time to expand their business and make capital expenditures in the coming months.
Key Implications
- The NFIB small business report adds to the string of positive data last month, as confidence among American small business owners improved further in March. While gains in the sub-components were broad-based, the strength in labor market indicators is striking. Employment demand for workers remains strong, with job openings rising to a new record high last month. Small business owners are raising worker compensation in order to attract the right talent, and are passing down some of the added costs through higher prices – a theme that lines up with a stronger inflation outlook this year.
- The positive employment trend should extend further out, given support from two major pillars: rising vaccinations, which are helping expedite the path to normalcy, and the added boost of the latest stimulus package, which also included specific measures aimed at helping small businesses.
- The rise of new virus variants will complicate the path to normalcy in the near term, and additional bouts of volatility should not be ruled out. The CDC has confirmed that the UK variant (B.1.1.7) is now the dominant strain of COVID-19 in the U.S. Meanwhile, a recent surge in cases in Michigan and many Northeast states once again highlights the capricious nature of the health crisis. What is more certain this time around, is that with vaccinations continuing at a much faster clip than new cases (over three million doses per day on average this week vs. 70k cases per day), any additional bouts of volatility should be relatively short lived.
