The NFIB Small Business Optimism Index increased 0.1 points to 101.8 in March, a historically strong level and an indication that small businesses continue to power the economy after being briefly shaken by January’s government shutdown. Overall, the Index anticipates solid growth, keeping the economy at “full employment” with no signs of a recession in the near term. The Uncertainty Index dropped six points to 79, returning to a more normal level for recent years.
Five Index components improved, two were unchanged, and three fell. Labor market indicators improved, the outlook for expansion, real sales and reports of rising earnings gained ground, and capital spending plans held steady. The major soft spot was in inventories with stocks viewed as too large and plans to invest in inventories turning slightly negative – more firms planning reductions than additions.
“Small business owners continue to create jobs, expand their operations, and are enjoying strong sales,” said NFIB President and CEO Juanita Duggan. “Since Congress resolved the shutdown, uncertainty has declined as small business owners add jobs, increase sales, and invest in their businesses and employees.”
Sixty percent of small business owners reported capital outlays, up two points and 27 percent plan capital outlays in the next few months, unchanged. Plans to invest were most frequent in wholesale trades (36 percent), manufacturing (34 percent), retail (33 percent), and transportation (32 percent). A net five percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, a six-point improvement, rebounding back from the “shut down, slow down” in sales. The net percent of owners expecting higher real sales volumes rose three points to a net 19 percent of owners, a solid reading.
The net percent of owners viewing current inventory stocks as “too low” lost four points to a net negative six percent, suggesting that inventories are still viewed as excessive. Imbalances were very large in the wholesale trades (-24 percent) and retail (-14), while in agriculture, 11 percent reported stocks too low compared to eight percent too high. The net percent of owners planning to expand inventory holdings fell from one percent to a negative one percent, a two-point decline.
“Owners are growing their businesses and expect that they can sell more if they can produce more with additional employees,” said NFIB Chief Economist Bill Dunkelberg. “Investment spending has been solid for the past two years and owners are choosing to invest in their workforce as well by creating new jobs and raising wages.”
As reported in the March NFIB Jobs Report, owners have added a record high number of new employees for the past two months, only one percent (down two points) of small business owners reported reducing employment an average of 2.4 workers per firm (seasonally adjusted) in March, the lowest percentage of owners reporting reductions in survey history. Twelve percent (unchanged) reported increasing employment an average of 2.7 workers per firm. Sixty percent reported hiring or trying to hire (up three points), but 54 percent (90 percent of those hiring or trying to hire) reported few or no qualified applicants for the positions they were trying to fill (up five points). Twenty-one percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem, only four points below the record high. Thirty-nine percent of all owners reported job openings they could not fill in the current period, up two points from February and equal to the record high set in December. A net 33 percent reported higher compensation in March, up two points.
Three percent of owners reported that all their borrowing needs were not satisfied, unchanged and historically very low. Thirty-three percent reported all credit needs met (down one point) and 51 percent said they were not interested in a loan, unchanged. Six percent reported their last loan was harder to get than the previous one, unchanged and historically low.