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 ended January at 105.9. That was only a fractional gain from December but still better than economists had expected and the highest reading since 2004. Under the hood, surveyed owners’ outlooks on employment, business expansion, earnings trends, and credit conditions all improved in January, while views of sales growth, inventory investment, the economy, and capital expenditures deteriorated. Focusing on small business labor conditions, hiring slowed in January but this was not surprising following the big staff gains seen during the holidays. Moreover, reported plans to increase employment rose last month to the highest level since 2006, and wage growth picked up as nearly half (47 percent) of owner respondents complained that there are “few or no” qualified applicants for vacant positions. The top two reported problems facing surveyed small business owners were once again taxes and government regulation, although such worries have lessened since the election. Quality of labor also remains a growing challenge for small businesses, while concerns about sales have diminished. The latter is especially encouraging since poor sales often lead unemployment. Bill Dunkelberg, NFIB’s chief economist, added that “Congress now has the opportunity to undo harmful, anti-growth policies. For small-business owners, the success or failure to produce positive results will be reflected in future reports measuring small business optimism and their hiring and spending activity.”
Elsewhere, data from the Bureau of Labor Statistics (BLS) showed that wholesale inflation pressures in America firmed last month, as the producer price index for final demand (PPI-FD) rose by 0.6 percent. That was twice the increase economists had anticipated and the largest monthly gain since September 2012. The strong headline print was helped by a 12.9 percent spike in the gasoline index, although PPI-FD excluding the volatile food and energy components still rose by 0.4 percent, more than expected. Year-over-year measures of wholesale inflation moderated in January due to downward revisions to earlier data. The producer price index is not always a useful gauge of consumer inflation because firms have varying levels of pricing power, i.e. some companies can easily pass on higher input costs to customers while others cannot. However, several PPI components are closely watched by Federal Reserve officials, and we will get an update on broader household price pressures with tomorrow’s release of the consumer price index (CPI).
Sources: Econoday, Bloomberg, ZH, Twitter, NFIB, U.S. DoL, FRBSLPost author: Charles Couch