July Small Business Optimism Climbs, Pay Rises 3%

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The National Federation of Independent Business (NFIB) Tuesday morning reported that its small business optimism index for July rose 1.6 percentage points from 103.6 in June to come in at 105.2. The index’s most recent peak came in January at 105.9. The consensus estimate from economists called for the index to decline by 0.4 percentage points to 103.2.

The four “hard” measures of the index posted mixed results last month. The job creation component rose by four points month over month in July to 19%, the job openings component rose five points to 35%, capital spending plans fell two points to 28% and inventory investment plans rose one point to 5%.

Some 27% of small business owners reported raising employees’ pay in the past three months. That’s up three points on a seasonally adjusted basis from the June total. Since January, net compensation changes have dropped three percentage points. Only 16% of small business owners are planning to raise wages in the next three months, down two points month over month and down two points compared to January.

In its comments on the report, NFIB noted:

Although no progress has been made on health care or tax reform, many important changes have occurred to the regulatory structure with few if any new rules showing up in the Congressional Register. These changes will seep into the regulatory structure with little fanfare, but will have significant impacts on regulation costs paid by small businesses going forward.

The NFIB reports that 35% of business owners currently have positions open that they are not able to fill (up five percentage points from June and four points from January) and that 52% said there were few or no qualified applicants for the open positions, up six points from the prior month’s total.

Business owners said their single most important problem is taxes (21%), followed by quality of labor (19%). Government regulations and red tape (18%) and cost/availability of insurance (9%) were the third and fourth most-cited problems. The least important problems are financing/interest rates and inflation, both at 2%.