Small Business Optimism Near Record High

Confidence among small business owners approached record-setting heights in February, according to the National Federation of Independent Business (NFIB), whose monthly Small Business Optimism Index rose 0.7 points from January's level to 107.6, the second highest level in the 45-year history of the index and just shy of the 1983 record high of 108.0. Leading the monthly index higher to beat consensus estimates were expectations of higher retail sales, up 3 points to a net 28 percent and a 2-point gain to a net 43 percent in expectations that the economy will improve.

Showing broadening strength, six of the ten components of the index posted increases and included its weakest components, current inventories, which rose 2 points while remaining negative at a net minus 3 percent, expected credit conditions, up 1 point to a net minus 3 percent, and earnings trends, up 1 point also to a net minus 3 percent. The story with earnings trends is brighter than the last reading implies, however, as reports of improved earnings trends were the highest since 1987.

The only decline among the ten main components was registered in plans to increase employment, which fell 2 points to a still strong showing at a net 18 percent. Overall strength in employment continues to be evident from current job openings, which remained unchanged but at an impressive net 32 percent. But small business owners reiterated reports of difficulties in finding qualified applicants for positions they were trying to fill, and they identified the lack of qualified workers as their number one problem at the highest rate since 2000. The situation is prompting business owners to increase wages, and higher worker compensation was reported by a net 31 percent of small business owners, also the highest rate since 2000.

Besides the almost unprecedented level of optimism among small business owners, the NFIB February survey points to a reshuffling in the perceived order of their problems, as for the first time in many years, finding qualified workers has surpassed taxes and regulations as the biggest problem and growth constraint for small business owners.