January Small Business Optimism Rises, Wages to Rise

The National Federation of Independent Business (NFIB) Tuesday morning reported that its small business optimism index for January rose by 2.0 percentage points from 104.9 in December to come in at 106.9. The consensus estimate from economists called for the index to increase by 0.6 percentage points to 105.5.

For 2017 the average monthly index was 104.8, the highest ever. The previous annual record was 104.6 set in 2004.

The four “hard” measures of the index posted mixed results last month. The job creation component remained flat month over month in January at 20%, the job openings component rose three points to 34%, capital spending plans rose two points to 29% and inventory investment plans rose by four points to 3%.

Some 31% of small business owners reported raising employees’ pay in the past three months, the highest reading since 2000. That’s up four percentage points on a seasonally adjusted basis from both November and December. Since January of 2017, net compensation changes have increased by one percentage point. Some 24% of small business owners are planning to raise wages in the next three months, up a point month over month and up six points compared to January 2016.

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In its comments on the report, NFIB noted:

The new tax law, the Tax Cuts and Jobs Act, produced the most recent boost to small business optimism. And federal government related cost pressures continue to abate, offering a more supportive business climate for small firms. Consumer spending remains supportive, and business spending and housing remain strong.

The NFIB reports that 34% of business owners currently have positions open that they are unable to fill (three percentage points higher than in December and up two points compared to January 2016) and that 49% said there were few or no qualified applicants for the open positions, down five points from the prior month’s total and two points higher since January of last year.

Business owners said their single most important problem is quality of labor (22%) followed by taxes (19%). Government regulations and red tape (16%) and cost/availability of insurance (10%) were the third and fourth most-cited problems. The least important problems are inflation (1%) and financing/interest rates (2%).

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