There were two important reports on the U.S. economy released this morning. First, the National Federation of Independent Business’s (NFIB’s) small business optimism index rose to 94.5 in June. That is better than economists had expected, the third month-over-month increase in a row, and the highest headline reading since last December. Four of the ten main components that make up the sentiment index improved last month, with respondents’ economic outlooks and capital expenditure plans seeing the biggest gains. Slightly fewer owners in June, though, believed that “now is a good time to expand,” and plans to build inventories also declined last month. Further, labor conditions generally softened in June, as measures of total employment, hiring plans, and wage growth all deteriorated. The pullback in plans to boost compensation is not surprising since the net percent of owners raising prices has remained near zero for quite some time, indicating that additional labor costs are not yet being passed on to customers and therefore potentially straining margins. However, the number of job openings increased in June, and an elevated number of surveyed small business owners continued to complain about a lack of qualified applicants for job vacancies, both of which could be supportive of wage growth down the road. Elsewhere in the report, the top two problems facing surveyed small business owners were once again taxes and government regulation but “quality of labor” continues to be a growing challenge. Owners were also worried about poor sales in June, which is worth monitoring going forward because such concerns often lead unemployment. Bill Dunkelberg, NFIB’s chief economist, added that “The NFIB data indicate no surge in growth coming from the small business sector to support Q3 growth. … Faced with the Federal Reserve’s “back-peddling” and BREXIT to add to uncertainty, the prospects for economic growth beyond recent experience are cloudy at best.”
Elsewhere, the job openings and labor turnover survey (JOLTS) from the Bureau of Labor Statistics, one of Fed Chair Janet Yellen’s favorite economic indicators, showed that there were 5.500 million job openings in May (lagged). That is a decrease from the all-time high hit in April and not too surprising given how disappointing the month of May was for the overall U.S. labor market. Job creation, though, was a clear negative in May, with total hires falling to 5.036 million, the third month-over-month decline in a row and the worst reading since November of 2014. Further, the number of unemployed workers per job opening ended May at 1.31, up slightly from the 15-year low hit in April. More importantly, the ratio of quits to layoffs and discharges rose to 1.74 in May, one of the highest readings of the recovery and a sign of American workers’ increased willingness to give up their current job security for better employment opportunities.
Sources: Econoday, Twitter, Bloomberg, ZH, NFIB, U.S. DoL, FRBSLPost author: Charles Couch