- The NFIB’s small business optimism index rose by 1.6 points to 99.8 in April, marking the third consecutive monthly improvement. The reading was slightly lower than market expectations for a 101.0 print.
- Gains were broad-based under the hood, with seven of the ten subcomponents improving on the month, one remaining unchanged and only two falling.
- Earning trends (up 8 points to -7), current inventory (up four points to 7%) and the belief that now is a good time to expand (up three points to 14%) all improved on the month. But expectations for an improvement in the economy retreated by 7 points to -15%, giving back part of last month’s gain.
- Labor market indicators were broadly positive. Current job openings improved by two points, rising to a new record high of 44%. The share of firms planning to increase employment fell by one point but remained elevated at 21%. At the same time, the share of firms with few or no qualified applicants rose three points to 54%, while quality of labor concerns remained top of mind.
- Businesses are raising compensation in order to attract the right talent. The share of firms increasing worker compensation and those planning to do so rose by three points apiece to respectively 31% and 20%. This was accompanied by an increase in the share of firms raising average selling prices (up 10 points to 36%) and those planning to do so (up two points to 36%), with both indicators now near the highest levels experienced over the last several decades.
- Among the remaining sub-indicators, capital outlay plans also recorded an improvement, rising seven points to 27%.
Key Implications
- Today’s NFIB report confirms that confidence among small business owners continued to improve in April, as the pandemic’s grip on the economy continued to loosen. The employment metrics remain among the report’s most salient parts. They show that small businesses are taking advantage of eased restrictions and an improving economic backdrop by hiring more workers and expanding operations.
- While the level of unemployment countrywide is still elevated, many small business owners report difficulty in finding qualified workers. This is evident from record-high job openings but too few qualified applicants and elevated ‘quality of labor’ concerns. Small businesses are increasingly resulting to boosting worker compensation in order to attract new talent. It’s also encouraging to see appetite for capital investments recording an improvement last month.
- Higher wages, alongside other higher input costs recently, are likely to be passed down to the consumer in an improving demand environment, boosting price pressures. Indeed, the elevated NFIB price metrics are yet another element that supports the reflation narrative. This area will bear careful scrutiny in the months ahead, as it will shed additional light on whether the jump in inflation will be transitory, as the Fed expects, or more persistent. Our assessment of current data points to an earlier hike than the Fed’s recent communication would suggest
