January Small Business Optimism Ticks Higher, Wages Up 4%

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The National Federation of Independent Business (NFIB) Tuesday morning reported that its small business optimism index for January rose 0.1 point from 105.8 in December to come in at 105.9. The January reading comes on top of a 7.4 point rise in December.

The four “hard” measures of the index posted mixed results last month. The job creation component rose by two points month over month in January to 18%, the job openings component rose two points to 31, capital spending plans fell two points to 27%, and inventory investment plans fell two points to 2%.

Some 30% of small business owners reported raising employees’ pay in the past three months. That’s up four points on a seasonally adjusted basis from the December total. Over the past two months, employee pay has jumped 9%. However, only 18% of small business owners are planning to raise wages in the next three months, down two points month over month.

In its comments on the report, NFIB noted:

The January jobs report surprised pundits (and disappointed critics), coming in strong and well ahead of “consensus.” NFIB survey results anticipated the strong showing as their optimism gets translated into hiring action. Gains in expected sales require more workers to produce output and handle sales. The increase in labor force participation was a welcome sign, suggesting that labor markets are not as tight as the unemployment rate indicates (which went up) and that, as opportunities materialize and compensation rises, more workers will re-enter the labor force.

Jay DesMarteau, Head of Small Business Banking at TD Bank commented:

While the January optimism data did not match last month’s unprecedented 7.3 point increase, it demonstrates that small business owners remain positive about the overall direction of the economy and business climate. Despite little movement this month, we anticipate improvement in business conditions and sales to help drive up small business optimism throughout 2017.

The NFIB reports that 31% of business owners currently have positions open that they are not able to fill (up two percentage points from December) and that 47% said there were few or no qualified applicants for the open positions, up three points from the prior month’s total.

Business owners said their single most important problem is taxes (21%), followed by government regulations and red tape (19%). Quality of labor (15%) and poor sales (10%) were the third and fourth most-cited problems. The least important problems are financing and interest rates and inflation, both at 2%.