Small Business Optimism Index Rises To New Record

The Small Business Optimism Index rose 0.9 points in August to 108.8, a new record in the survey's 45-year history. Leading the index higher beyond not only consensus forecasts but also the range of analysts' expectations was a 6-point gain to a net 10 percent in plans to increase inventories, a 3-point increase to a net 33 percent in plans to make capital outlays, and once again, plans to increase employment, which also rose 3 points to a net 26 percent, a record high.

The August record-setting optimism reading was driven by 6 of the 10 components of the index and included a gain of 2 points in earnings trends to a net of 1 percent and an increase of 2 points to a net 34 percent of small business owners declaring that now is a good time to expand. Adding another positive from the jobs front, business owners reporting current job openings they could not fill rose 1 point to a net 38 percent, a survey high.

Holding back the index was a decline in expectations of higher real sales, which were down 3 points to a a still very strong net 26 percent, as well as a decline of 2 points to a net minus 6 percent in expected credit conditions and a 1-point drop to a net 34 percent in expectations that the economy will improve.

Featuring the highest reading in inventory investment plans since 2005 and the highest reading for capital spending plans since 2007, as well as historical records in job creation and job openings, the August survey shows small business owners shifting into high gear to realize their earlier less concrete optimistic expectations of better business conditions and the view that now is a good time to expand. Yet the survey results may be seen as indicative of overheating, supporting the need for further tightening by the Fed.