Small business owners expressed slightly higher levels of optimism in February with the NFIB Optimism Index moving up 0.2 points to 104.5, a reading among the top 10 percent in the 46-year history of the survey. Those expecting better business conditions increased and job creation and openings improved as well. Real sales expectations declined along with capital expenditure and inventory plans.
“The small business economic expansion continued its historic run in February, as owners remained focused on growing their businesses in this supportive tax and regulatory environment,” said NFIB Chief Economist William Dunkelberg. “February was another historically strong month for the small business economy, but it’s worth noting that nearly all of the survey’s responses were collected prior to the recent escalation of the coronavirus outbreak and the Federal Reserve rate cut. Business is good, but the coronavirus outbreak remains the big unknown.”
Reports of better business conditions in the next six months improved 8 points, to a net 22 percent, according to the survey. The NFIB Uncertainty Index fell one point in February to 80. Those who say it is a good time to expand dipped 2 points to 26 percent.
The net percent of owners raising average selling prices fell 4 points to a net 11 percent, seasonally adjusted. A net 5 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down 2 points from January. The levels of owners expecting higher real sales volumes declined 4 points to a net 19 percent of owners.
Small business owners continue to indicate their credit needs are being met with little trouble borrowing. Thirty-two percent reported all credit needs met (up 2 points), and 55 percent said they were not interested in a loan (up 1 point). Two percent of owners reported that all their borrowing needs were not satisfied, down 1 point, matching the record low.
Sixty-two percent reported capital outlays, down 1 point from January’s reading, while 26 percent plan capital outlays in the next few months, down 2 points from January. The net percent of owners reporting inventory increases rose 1 point from January’s reading to a net 7 percent, and the net percent of owners planning to expand inventory holdings decreased from January by 2 points to a net 2 percent, a solid number.
As reported in last week’s NFIB’s monthly jobs report, small business owners added an average of 0.43 workers per firm, but finding qualified workers remained the top issue with 25 percent reporting this as their number one problem, 2 points below August’s record high. Twenty-five percent of the owners selected “finding qualified labor” as their top business problem, far more than those citing either taxes or regulations.
Historically high percentages of owners plan to raise worker compensation. Seasonally adjusted, a net 36 percent reported raising compensation (unchanged) and a net 19 percent plan to do so in the coming months, down 5 points from January. Eight percent cited labor costs as their top problem.
“Firms will likely continue offering improved compensation to attract and retain qualified workers as the labor market remains highly competitive,” said Dunkelberg. “Compensation levels will hold firm unless the economy weakens substantially as owners do not want to lose the workers that they already have.”