Small Business Optimism Begins the Year on Positive Note

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The National Federation of Independent Business (NFIB) Tuesday morning reported that its small business optimism index rose from 102.7 in December 2019 to 104.3 in January 2020. This month’s index is the top 10% of index readings in more than four decades. The consensus estimate from economists had called for the January index to increase to 103.2.

The percentage of business owners who now expect the economy to improve in the next few months dipped by two percentage points to 14% in January following a three-point gain in October and a gain of one point in October. The earnings trend slipped by three points from a net zero to a net −3% of business owners reporting quarter-over-quarter profits.

Some 36% of small business owners reported raising employees’ pay in the past three months. That’s seven points higher on a seasonally adjusted basis compared with December. The percentage of firms planning to raise net compensation remained unchanged at 24%.

In its small business jobs report published last week, the NFIB noted that the month-over-month job creation component remained flat at 19% and the job openings component rose by four points to 37%.

NFIB’s chief economist, Bill Dunkelberg, commented in the jobs report: “Small businesses are keeping the strong economic momentum going in the New Year. They are adding jobs and raising compensation. With the help of tax and regulatory relief, the small business economy is a strong force.”

Some 37% of business owners reported job openings they couldn’t fill, up by four points month over month. A full 56% of business owners reported hiring or trying to hire workers last month, and 88% of those reported few or no qualified applicants for the available jobs.

The NFIB noted the impact of the coronavirus outbreak on small business owners:

The biggest risk appears to be potential global implications of the Wuhan coronavirus. The Fed has said it’s monitoring the spread of the disease and its impact on China’s economy, deciding in March whether there’s a larger impact that deserves policy action. But if just evaluating the U.S. economy, risks to slower economic growth are low in the near term. Small business owners remain highly optimistic on continued growth as strong policy fundamentals in D.C. remain supportive of Main Street.

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