December 2018 Small Business Optimism: Unchanged But Remains Historically High

from the National Federation of Independent Business

The NFIB Small Business Optimism Index remained basically unchanged in December, drifting down 0.4 points to 104.4, according to the report released today. Unfilled jobs and the lack of qualified applicants continue to be a primary driver, with job openings setting a record high and job creation plans strengthening. Reports of higher worker compensation remained near record levels and inventory investment plans surged. Expected real sales growth and expected business conditions in the next six months, however, accounted for the modest decline in the Index.

[editor's note: Market expectation from Econoday was between 100.7 to 105.0 (consensus 104.0 versus the actual reading of 104.4)].

Said NFIB President and CEO Juanita Duggan:

Optimism among small business owners continues to push record highs, but they need workers to generate more sales, provide services, and complete projects. Two of every three of these new jobs are historically created by the small business half of the economy, so it will be Main Street that will continue to drive economic growth.

A recent historical perspective:

  • Actual hiring strengthened to the highest reading in six months, job openings are at a record high levels, and plans to create new jobs are down only three points from August's record high.
  • The net percent of owners expecting better business conditions in six months and the percent viewing the current period as a good time to expand have both tapered off since the record high Index reading in August but still remain well above their historical averages.
  • Actual capital outlays are five percentage points higher than in August, although plans for outlays are eight points below the high for this expansion.
  • Plans to invest in inventories are only two points below August, the record high. Satisfaction with inventories is two points better.

Last week's NFIB Jobs Report noted that job creation remained solid with a net addition of 0.25 workers per firm, up from 0.19 in November and the best reading since July. A seasonally-adjusted net 23 percent plan to create new jobs, up one point from November's reading. Not seasonally adjusted, 23 percent plan to increase total employment at their firm (up one point), and five percent plan reductions (down two points).

A record 39 percent of small business owners reported job openings they could not fill in the current period. Sixty percent of owners reported hiring or trying to hire, but 90 percent of those reported few or no qualified applicants for the position. Twenty-three percent of owners cited the difficulty in finding qualified workers as their Single Most Important Business Problem.

Said NFIB Chief Economist Bill Dunkelberg:

Recently, we've seen two themes promoted in the public discourse: first, the economy is going to overheat and cause inflation and second, the economy is slowing and the Federal Reserve should not raise interest rates. However, the NFIB surveys of the small business half of the economy have shown no signs of an inflation threat, and in real terms Main Street remains very strong, setting record levels of hiring along the way.

The percent of business owners reporting that they increased employee compensation continued at 45-year record high levels. In December, a net 35 percent reported increasing compensation and a net 24 percent reported planned increases in the next few months.

The net percent of owners reporting inventory increases fell three points to a net three percent (seasonally adjusted), following November's strong showing, the second-best since 2005.

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