Small business owner sentiment stabilized last month, according to an updated report from the National Federation of Independent Business (NFIB). Specifically, the headline optimism index rose to 95.8 in February, the first monthly increase since September but slightly worse than analysts anticipated and still well below pre-election levels. Five of the ten main components that make up the optimism gauge improved in February, while reported expectations for sales growth, credit conditions, and capital investment all deteriorated. For now such weakness can be largely attributed to the various unknowns surrounding the recent regime shift in Washington, and the NFIB researchers added that “There is still significant policy uncertainty, for COVID-19, tax policy, and the focus of regulations from the regulatory agencies. Much will be learned over the next few months as the course of the virus becomes clearer and Biden nominees are confirmed and get to work.”
Despite the looming policy unknowns small business employment trends continue to improve in response to the rapid decline in COVID-19 cases and hospitalizations. Indeed, as the pandemic becomes less severe more business activity restrictions can be lifted, in turn allowing companies to further expand their staffs. In fact, reported hiring plans rose to a 3-month high in February, and total job openings jumped to a new record. Worker compensation also picked up last month, and reported plans for additional wage increases held at a post-lockdown high, not surprising since more than half of surveyed owners complained about there being “few or no” qualified applicants to vacant positions. Also of note is the NFIB’s gauge of realized price changes, which has surged recently. This matters because this particular metric has historically been a good predictor (see below) of where broader inflation in America may be heading, and the recent uptick reported by small business owners supports our earlier call for pockets of rising prices in 2021. However, we continue to reiterate that a lot of the near-term price pressure is resulting from lingering pandemic-related supply constraints that should abate as the vaccine rollout continues and social distancing rules are eased.
Sources: Econoday, NFIB, Nordea, FRBSL