The National Federation of Independent Business (NFIB) Tuesday morning reported that its small business optimism index for September dropped by 0.9 percentage points from 108.8 in August to come in at 107.9. The August index reading was the highest in the 45-year history of the index. The consensus estimate from economists had called for the September index to remain flat at 108.8.

Some 37% of small business owners reported raising employees’ pay in the past three months. That’s up five points on a seasonally adjusted basis compared with the August total, and an all-time high. Since January of 2017, net compensation changes have increased by seven percentage points. Some 24% of small business owners are planning to raise wages in the next three months, up three points month over month.

The four “hard” measures of the index posted mixed results last month. The job creation component fell three points month over month in September to 23%, the job openings component was unchanged at 38%, capital spending plans fell three points to 30%, and plans to increase inventory investment fell seven points to 3%.

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

NFIB President and CEO Juanita Duggan commented:

There is extraordinary competition for workers in this historically tight labor market. Small business owners are investing more in their employees to attract and keep qualified workers. Thanks to the recent tax cuts and regulatory reforms, owners are able and comfortable investing more in their employees and businesses which further strengthens the economy.

In its commentary on the September report, the NFIB noted:

Since the election, results of the Administration’s economic policies have been exceptional to date. In the small business half of the economy, this year has produced 45 year record high measures of headline optimism, job openings, hiring plans, actual job creation, compensation increases (actual and planned), profit growth, and inventory investment. Actual capital spending has also posted substantial gains. … [However], [t]he economy is growing faster than our ability to support that growth without inflation or significant productivity gains. Many analysts observe that with the labor force growing about 0.7 percent a year and output per worker (productivity) growing about 1.5 percent per year (at best), it is hard to support demand growth in excess of about 2 percent (the sum of the two which measures our growth in the capacity to produce output). So, with growth running at 3 percent and higher, this presents issues in the future.

A record-tying high of 38% of business owners reported job openings they couldn’t fill. More than half (53%) reported few or no qualified applicants for available jobs. Some 22% of business owners said finding qualified workers is their single most important business problem.

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