Small Business Optimism Index Posts Third Highest Reading in 45-Year History

A team of millennial business owners collaborating on an online project using a touchpad tablet in a modern office space. (Photo: AdobeStock/AYAimages)

The National Federation of Independent Business (NFIB) Small Business Optimism Index eased slightly from a record-high reading to 107.9 in September, the third highest in the survey’s 45-year history. Small business optimism posted the highest reading ever last month at 108.8, with capital expenditures stronger than ever before.

In 2018, economic growth for small business has produced 45-year record highs for job openings, hiring plans, actual job creation, compensation increases (actual and planned), profit growth, and inventory investment.

“The economy continues to deliver a spectacular performance for one so near its record length. Small business owners continue to face labor force challenges but are increasing compensation to keep up,” said NFIB Chief Economist Bill Dunkelberg. “With profits and investment remaining strong, our hope is that policymakers will stay the course and not screw around with success.”

The September 2018 survey showed:

Actual capital spending in the past few months rose significantly.
Average employment change per firm was solid.
Owners bulked up inventories.
Compensation increases set a new record.

“This is the longest streak of small business optimism in history, evidence that tax cuts and regulatory rollbacks are paying off for the economy as a whole,” said NFIB President and CEO Juanita D. Duggan. “Our members say that business is booming and prospects continue to look bright.”

Actual investment spending improved as prospects for the economy remain strong. Sixty percent (60%) of small business owners reported capital outlays, up 4 points from August. Of those making expenditures, 41% reported spending on new equipment (+2), 26% acquired vehicles (+4) and 16% improved or expanded facilities (-2).

Consumer spending temporarily slowed in August, likely producing excess inventories but has picked up again which will reverse the build-up. The net percent of owners expecting higher real sales volumes rose three points to a net 29 percent of owners. Owners reporting inventory increases rose one point to a net five percent (seasonally adjusted). Strong expectations for higher real sales translate into higher expected returns on capital investments as well as a need for more employees.

A record net 37% of owners reported raising overall compensation, as reported in last week’s NFIB monthly jobs report. This surpasses the previous record of a net 35% in May 2018. Twenty-four percent plan to increase total compensation at their firm and 6% plan reductions. Sixty-one percent (61%) of owners reported hiring or trying to hire, with 87% of those reporting few or no qualified workers. Thirty-eight percent (38%) of owners reported job openings they could not fill in the current period, unchanged from last month.