The National Federation of Independent Business (NFIB) said that small business sentiment ticked higher in August, rising to its second-highest level in seven years. The Small Business Optimism Index increased from 95.7 in July to 96.1 in August. After peaking at 96.6 in May, the index eased somewhat in June, and August’s reading suggests that confidence has once again begun to climb back. Over a longer time frame, it is clear that small business owners have become more positive over the past six months, with the index at just 91.4 in February.
With that said, the underlying data were slightly mixed. On the positive side, the percentage of small business owners with job openings right now increased from 24 percent to 26 percent, continuing an upward trend. Along those lines, the percent planning to make capital expenditures over the next 3 to 6 months rose from 23 percent to 27 percent, its fastest pace since November 2007 (the month before the official start of the recession). On the topic of inflation, pricing pressures have decelerated a bit, with the net percentage of those predicting price increases over the next 3 months declining from 22 percent to 19 percent.
Yet, the report also reflected some soft spots. For instance, sales expectations over the next 3 months dipped from a net percentage of 10 percent to 6 percent. In addition, the percentage suggesting that the next 3 months were a “good time to expand” was off slightly from 10 percent to 9 percent. Nonetheless, the outlook data do reflect an upward trend overall, rising from 6 percent in February. For those saying that it is not a good time for expansion, the top reasons cited continue to be economic conditions and the political climate. Taxes were the listed as the “single most important problem” by 24 percent of respondents, followed by government regulations (19 percent), poor sales (13 percent) and labor quality (11 percent).
Chad Moutray is the chief economist, National Association of Manufacturers.