Optimism among small business owners continued its steady climb in April, with the NFIB Small Business Optimism Index increasing 1.7 points to 103.5. Sales improved in April, the inventory soft spot seen in last month’s report rebounded, and profit trends posted a very solid advance. Job creation plans gained, hiring remained strong, and expectations for sales, business conditions, and credit conditions all improved.
“America’s small and independent businesses are rebounding from the first quarter ‘shut down, slow down’ and don’t appear to be looking back. April’s Index is further evidence that when certainty and stability increase, so do optimism and action,” said NFIB President and CEO Juanita D. Duggan. “The continued economic boom is thanks, in a major way, to strong growth in the small business half of the economy.”
A net 9% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, a four-point improvement, and the net percent of owners expecting higher real sales volumes rose one point to a net 20% of owners. The net percent of owners reporting inventory increases fell three points to a net 2% (seasonally adjusted). This is consistent with the significant build up in the first quarter that added nearly one point to GDP growth, and owners slowed additions to wait and see how much customers reduced the excess stock. The net percent of owners viewing current inventory stocks as “too low” improved two points to a net negative 4% as fewer owners viewed stocks as excessive.
The net percent of owners planning to expand inventory holdings rose from a negative 1% to 2%, a three-point gain, indicating that strong sales gains resolved the excessive Q1 inventory build and owners are ready to place new orders and build inventory.
“The ‘real’ economy is doing very well versus what we see in financial market volatility. Many jobs are being created, and GDP produced with no substantive inflation pressure. The pace of economic growth has accelerated, and consumers and small businesses are an important part of the improvement in sales,” said NFIB’s Chief Economist Bill Dunkelberg.
The frequency of reports of positive profit trends improved five points to a net negative 3% reporting quarter on quarter profit improvements, a very solid gain. Twenty-seven percent plan capital outlays in the next few months, unchanged. While investment spending has been solid for the past two years, more will be needed to make up for the years of weak investment spending starting in 2008. From the start of the recovery in Q3 2009 through 2016, the average percent reporting capital outlays was 54% and was as low as 44% (September, November, December 2009 and August 2010). After 2016, the average has been 60%, with a high of 66% reached in February 2018. Recent productivity numbers suggest that the revival in small business investment has started to pay off with gains in worker productivity.
As reported in the April NFIB Jobs Report, 24% of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem, one point below the record high. Fifty-seven percent reported hiring or trying to hire (down three points), but 86% of those hiring or trying to hire reported few or no qualified applicants for the positions they were trying to fill. Thirty-eight percent of all owners reported job openings they could not fill in the current period, down one point from the record high. Overall, reports of rising compensation are holding at historically high levels, with reports of higher worker compensation rising one point to a net 34% of all firms. Plans to raise compensation were unchanged at a net 20%.
Owners expecting better business conditions increased two points to a net 13% and those expecting easier credit conditions increased three points. Four percent of owners reported that all their borrowing needs were not satisfied, up one point and historically very low. Two percent reported that financing was their top business problem (up one point) compared to 24% citing the availability of qualified labor, 16% citing taxes, and 15% citing regulations and red tape.