Small Business Optimism Rises Near 7-Year High

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The National Federation of Independent Business (NFIB) Tuesday morning reported that its small business optimism index for August rose 0.4 points from 95.7 in July to come in at 96.1. The August reading is the second-highest since October 2007.

What the NFIB refers to as the “hard” measures of the index were unchanged month-over-month: job creation index, job openings, capital spending plans and inventory investment plans.

In August, small business owners identified their three most important problems as taxes, government regulations and red tape, and poor sales. Only taxes scored higher in August 2014 than in 2013. The quality of labor score increased year-over-year from five points to 11.

The NFIB’s chief economist said:

Expectations are still glum, although improving grudgingly. More owners still think business conditions will be worse in six months than think they will be better. Few see the current period as a good time to expand. The outlook for improvements in real sales volumes faded. Interest in borrowing continues to remain at record low levels; owners are satisfied with inventories and aren’t planning a lot of investment. There is still no evidence that we are about to ramp up spending and hiring to “3 percent” GDP growth levels.

The NFIB reports that 26% of business owners currently have positions open that they are unable to fill (up 2% compared with July) and that 46% said there were few or no qualified applicants for the open positions.

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One promising note was struck in the wages area. Earnings rose one point to a net negative reading of 17, the best since 2007. Some 25% of small businesses reported that compensation costs rose while only 2% reported a drop. Compensation costs were up one point and posted their second-best reading since the first quarter of 2008.

A net 15% of business owners plan to raise compensation in the next few months, up one point.

The NFIB noted, “The reported gains in compensation are now solidly in the range typical of an economy with solid growth, but it isn’t clear that we have ‘solid growth’, unless we are ready to settle for the sub-par tunnel we have been in.”