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 May at 104.5, unchanged from April but better than economists had expected. Under the hood, five of the ten main components that make up the sentiment index improved in May, including a large gain in surveyed owners’ sales expectations. As for small business labor conditions, total employment rose last month to the best level since September 2015, and gauges of both hiring plans and the number of job openings lifted to new all-time highs. At the same time, 51 percent of surveyed small business owners in May complained that there were few or no qualified applicants for the positions they were trying to fill. That has clearly started to put upward pressure on wages, which will result in increased margin strain until owners are confident they can start raising selling prices without damaging demand. Moreover, rising concerns about the quality of labor have replaced government regulation as the 2nd-most important problem facing small businesses at the moment, according to surveyed owners. The top problem remains taxes, and Bill Dunkelberg, NFIB’s chief economist, added that “Removing the penalties embedded in our tax code and regulatory structure which waste valuable time and hours will do much to speed up the [GDP] growth rate, making the U.S. a growth leader.”
Elsewhere, data from the Bureau of Labor Statistics (BLS) showed that wholesale inflation pressures in America firmed slightly in May, as the producer price index for final demand (PPI-FD) was unchanged from the previous month. That resulted in a year-over-year headline gain of 2.4 percent, well above the Federal Reserve’s 2.0 percent “target.” Further, “core” PPI-FD, which excludes the volatile food and energy components, rose by 0.3 percent last month. That was more than anticipated and enough to lift the annual pace of growth to 2.1 percent, again above policymakers’ inflation goal. Altogether, this report should help make it easier for officials to justify another quarter point increase to the federal funds rate at tomorrow’s Federal Open Market Committee (FOMC) meeting.
Sources: Econoday, NFIB, U.S. DoL, FRBSLPost author: Charles Couch