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NFIB Small Business Survey: “Small Business Optimism Index Nears Survey High in July”

Summary:
The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for July came in at 107.9, up 0.7 from the previous month and its second highest of all time. The index is at the 100th percentile in this series. Today's number came in above the Investing.com forecast of 106.9.Here is an excerpt from the opening summary of the news release. The Small Business Optimism Index marked its second highest level in the survey’s 45-year history at 107.9, rising to within 0.1 point of the July 1983 record-high of 108. The July 2018 report also set new records in terms of owners reporting job creation plans and those with job openings. A seasonally-adjusted net 23 percent are planning to create new jobs, up

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The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for July came in at 107.9, up 0.7 from the previous month and its second highest of all time. The index is at the 100th percentile in this series. Today's number came in above the Investing.com forecast of 106.9.

Here is an excerpt from the opening summary of the news release.

The Small Business Optimism Index marked its second highest level in the survey’s 45-year history at 107.9, rising to within 0.1 point of the July 1983 record-high of 108. The July 2018 report also set new records in terms of owners reporting job creation plans and those with job openings. A seasonally-adjusted net 23 percent are planning to create new jobs, up three points from June. Thirty-seven percent of all owners reported job openings they could not fill in the current period, a one-point increase from June.

“Small business owners are leading this economy and expressing optimism rivaling the highest levels in history,” said NFIB President and CEO Juanita Duggan. “Expansion continues to be a priority for small businesses who show no signs of slowing as they anticipate more sales and better business conditions.”

The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example, the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings following the Great Recession that ended in June 2009.

NFIB Small Business Survey:

Here is a closer look at the indicator since the turn of the century. We are now at a post-recession high.

NFIB Small Business Survey:

The average monthly change in this indicator is 3.0 points. To smooth out the noise of volatility, here is a 3-month moving average of the Optimism Index along with the monthly values, shown as dots.

NFIB Small Business Survey:

Here are some excerpts from the report.

Labor Markets

Small business owners added the largest number of workers per firm since 2006 in July, adding a net 0.37 workers per firm on average, almost double June’s rate.

Inflation

How effective has the Fed's monetary policy been in lifting inflation to it two percent target rate?

The net percent of owners raising average selling prices rose 2 points to a net 16 percent seasonally adjusted. Seasonally adjusted, a net 24 percent plan price hikes (unchanged). With reports of increased compensation running at record levels, there is more pressure to pass these costs on in higher selling prices. Shortages also create opportunities to raise prices as in the housing market.

Credit Markets

Has the Fed's zero interest rate policy and quantitative easing had a positive impact on Small Businesses?

Three percent of owners reported that all their borrowing needs were not satisfied, unchanged and just 1 point above the record low. Thirty-two percent reported all credit needs met (up 2 points), and 50 percent said they were not interested in a loan, down 4 points. Two percent reported that financing was their top business problem (unchanged) compared to 17 percent citing taxes, 14 percent citing regulations and red tape, and 23 percent the availability of qualified labor.

NFIB Commentary

This month's "Commentary" section includes the following observations and opinions:

Although some panned any celebration of the 4.1 percent second quarter GDP growth, small business owners beg to disagree. At least in the small business sector of the economy, Main Street’s performance over the last 21 months is unprecedented based on reports for the past 45 years by hundreds of thousands of NFIB’s member firms. Owners have never been so optimistic for so long. This has translated to improved employment and investment spending that buoys GDP growth, even at the end of what will be the longest expansion in modern history.

Now the second longest expansion in history, Main Street is set to push this expansion to a new record by adding a super-charged era of growth on to the sluggish one from 2009 to 2016.

Business Optimism and Consumer Confidence

The next chart is an overlay of the Business Optimism Index and the Conference Board Consumer Confidence Index. The consumer measure is the more volatile of the two, so it is plotted on a separate axis to give a better comparison of the two series from the common baseline of 100.

NFIB Small Business Survey:

These two measures of mood have been highly correlated since the early days of the Great Recession. The two diverged after their previous interim peaks, but have recently resumed their correlation. A decline in Small Business Sentiment was a long leading indicator for the last two recessions.

Read more updates by Jill Mislinski  

Doug Short
My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I'm a first wave boomer with a Ph.D. in English from Duke and a lifelong interest in economics and finance. In 2011 my website was acquired by Advisor Perspectives.

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