November 2018 Small Business Optimism: Declined But Remains Historically High

Labor Markets. Job creation was solid in November at a net addition of 0.19 workers per firm (including those making no change in employment), up slightly from September and October readings at 0.15. Sixteen percent (unchanged) reported increasing employment an average of 2.9 workers per firm and 11 percent (unchanged) reported reducing employment an average of 1.9 workers per firm (seasonally adjusted). Sixty percent reported hiring or trying to hire (unchanged), but 53 percent (87 percent of those hiring or trying to hire) reported few or no qualified applicants for the positions they were trying to fill (unchanged). Twenty-five percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem (up 2 points), matching the record high reached in August. Thirty-four percent of all owners reported job openings they could not fill in the current period, down 4 points from last month's record high. Fourteen percent reported using temporary workers (unchanged). A seasonally-adjusted net 22 percent plan to create new jobs, unchanged from October's reading. Job creation plans were strongest in manufacturing (a net 26 percent). However, with labor markets tight, it will be difficult to fulfill those plans. Thirty percent have openings for skilled workers and 12 percent have openings for unskilled labor.

Sales and InventoriesA net 9 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, up 1 point and historically very strong. Thirty percent or more of the owners in construction, manufacturing, retail, and transportation reported quarterly improvements in sales. The net percent of owners expecting higher real sales volumes fell 4 points to a net 24 percent of owners, a solid reading but a significant decline. The net percent of owners reporting inventory increases rose 2 points to a net 6 percent (seasonally adjusted), the strongest reading since 2004. The net percent of owners viewing current inventory stocks as "too low" fell 3 points to a net negative 5 percent, suggesting that the stock of inventories is beginning to look a bit excessive given the expected decline in real sales noted above. Still, the net percent of owners planning to add to stocks held at a net 2 percent of owners.

Credit Markets. Three percent of owners reported that all their borrowing needs were not satisfied, unchanged. Thirty-two percent reported all credit needs met (up 2 points) and 47 percent said they were not interested in a loan, down 5 points, an indicator that loan demand may pick up. Five percent reported their last loan was harder to get than the previous one, up 1 point but historically low. Two percent reported that financing was their top business problem (unchanged) compared to 19 percent citing taxes, 13 percent citing regulations and red tape, and 25 percent the availability of qualified labor. The percent of owners reporting paying a higher rate on their most recent loan rose 2 points to 19 percent, the highest since 2007 prior to the Federal Reserve taking control of rates. Thirty-two percent of all owners reported borrowing on a regular basis (unchanged). The average rate paid on short maturity loans fell 30 basis points to 6.1 percent.

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