News: General News

Small Business Optimism Roars Back, Rivaling Historic Highs

Friday, June 14, 2019  
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Small business optimism eclipsed pre-shutdown levels in May, increasing 1.5 points to 105.0 on the National Federation of Independent Business Small Business Optimism Index. Six components in the index improved, three were unchanged, and one dipped. Capital spending plans increased along with actual outlays. Small business owners’ expectations for sales, business conditions, and expansion all rose, as the previously reported inventory imbalance was resolved. Earnings, job creation, and compensation remained very strong.

 

“Optimism among small business owners has surged back to historically high levels, thanks to strong hiring, investment, and sales,” said NFIB President and CEO Juanita D. Duggan. “The small business half of the economy is leading the way, taking advantage of lower taxes and fewer regulations, and reinvesting in their businesses, their employees, and the economy as a whole.”

 

Business owners reporting capital outlays increased six points to 64 percent, the highest reading since February 2018. Thirty percent plan capital outlays in the next few months, up three points and historically high. Plans to invest were most frequent in transportation (45 percent), manufacturing (39 percent), professional services (39 percent), and construction (31 percent).

 

A net nine percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, unchanged from April and historically strong. The net percent of owners expecting higher real sales volumes rose three points to a net 23 percent of owners. A net 16 percent expect better business conditions, up three points, and 30 percent say now is a good time to expand, a five-point increase. The frequency of reports of positive profit trends improved two points to a net negative one percent, a very solid gain.

 

The net percent of owners reporting inventory increases was unchanged at a net two percent (seasonally adjusted), consistent with the significant build up in the first quarter that added nearly one point to GDP growth. The net percentage of owners viewing current inventory stocks as “too low” was unchanged at a net negative four percent. The net percentage of owners planning to expand inventory holdings was unchanged at a net two percent, indicating the excessive inventory build in Q1 has been substantially resolved overall, helped by strong sales gains.

 

Inflation pressures remained subdued, even though reports of compensation gains remained at historically high levels. The government reported a substantial improvement in productivity and an associated decline in unit labor costs which offsets the need to increase prices to cover rising labor costs. The net percentage of owners raising average selling prices fell three points to a net 10 percent, seasonally adjusted. A net 20 percent plan price hikes, seasonally adjusted (down one point).