Small business owner confidence improved slightly last month, according to a new report from the National Federation of Independent Business (NFIB). Specifically, the headline optimism index ended March at 101.8, a fractional increase from February but still the second gain in a row following the largest monthly decline since 2015. Although the sentiment gauge is well below the all-time high hit last summer it remains at a historically healthy reading that is consistent with continued growth. Further, reported capital spending plans held steady in March and the outlook for expansion and real sales strengthened. The percentage of owners citing “poor sales” as their most important problem, though, rose to the highest level in a year (and double the cycle low).
Historically this metric has trended higher ahead of an upward reversal in the unemployment rate, but false signals are also possible and currently the NFIB’s labor market indicators are providing no immediate reasons for concern. In fact, job creation remained solid in March, and net employment growth held near a record level as many small businesses are reluctant to let workers go due to the highly competitive labor market. Moreover, 90 percent of the firms that were trying to expand their staffs recently reported “few or no” qualified applicants for the positions they were trying to fill, and labor quality was once again owners’ top-cited business problem. This environment should keep upward pressure on worker compensation in 2019, and the report’s authors added that “The percent of owners citing labor costs as their single most important business problem hit a 45-year record high in February. … However, the larger problem is finding someone to pay, not the actual wage cost.”
Sources: NFIB, Renaissance Macro
Post author: Charles Couch