SURVEY: Small Business Optimism Starts New Year Solid as Ever

Published Tuesday, February 11, 2020 at 11:44 am

The NFIB Small Business Optimism Index began the year in the top 10% of all readings in the 46-year history of the survey. The index rose 1.6 points to 104.3 in the month of January. 

Six of the 10 Index components improved, two declined, and two were unchanged. The Uncertainty Index edging up slightly. Small business owners expecting business conditions to improve dipped slightly, but sales expectations and earnings trends were up significantly. As was reported last week, job creation surged in January.

“2020 is off to an explosive start for the small business economy, with owners expecting increased sales, earnings, and higher wages for employees,” said NFIB Chief Economist William Dunkelberg. “Small businesses continue to build on the solid foundation of supportive federal tax policies and a deregulatory environment that allows owners to put an increased focus on operating and growing their businesses.”

State-specific data isn’t available, but NFIB State Director Gregg Thompson said, “It’s clear from the numbers that our members think now is the time to add jobs and expand their businesses.”

The net percent of owners expecting higher real sales volumes increased 7 points to 23 percent with owners a bit more certain of future sales growth prospects. A net 7% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down 2 points from December. 

The NFIB Uncertainty Index moved up 1 point from December to 81, but well below the spike to 86 seen in last January’s Index, following the government shutdown. A net 14% of owners expect better business conditions.

The frequency of reports of positive profit trends reversed half of December’s decline, increasing 5 points in January. Thirty-three percent of those reporting weaker profits blamed weak sales, 27 percent blamed usual seasonal change, and 8 percent cited labor costs, 6 percent cited materials costs, and 4 percent cited price changes. For those reporting higher profits, 61 percent credited sales volumes. 17 percent credited the usual seasonal change.

As reported in last week’s NFIB’s monthly jobs report, new job creation jumped in January, with an average addition of 0.49 workers per firm, the highest level since March 2019. Twenty-six percent of owners reported finding qualified workers as their number one problem, 1 point below August’s record high. Fifty-six percent reported hiring or trying to hire (up 3 points), but 49 percent reported few or no “qualified” applicants for the positions they were trying to fill.

Historically high percentages of owners plan to raise worker compensation, as they seek to fill open positions. Seasonally adjusted, a net 36 percent reported raising compensation (up 7 points) and a net 24 percent plan to do so in the coming months, unchanged from December. Eight percent cited labor costs as their top problem.

“Finding qualified labor continues to eclipse taxes or regulations as a top business problem. Small business owners will likely continue offering improved compensation to attract and retain qualified workers in this highly competitive labor market,” Dunkelberg concluded. “Compensation levels will hold firm unless the economy weakens substantially as owners do not want to lose the workers that they already have.”

The net percent of owners raising average selling prices rose 1 point to a net 15 percent, seasonally adjusted, continuing a measured upward trend since September. Price hikes were most frequent in retail (24 percent higher, 6 percent lower) and wholesale (20 percent higher, 8 percent lower). Seasonally adjusted, a net 24 percent plan price hikes (up 4 points).

Click here to view the NFIB Small Business Economic Trends Survey.

About the Small Business Economic Trends

The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since the 4th quarter of 1973 and monthly surveys since 1986. Survey respondents are drawn from a random sample of NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in January 2020. For more information about NFIB, please visit NFIB.com.

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