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Data Release: July NFIB Small Business Index

by Sergio Mariaca on Aug 9, 2016 11:12:33 AM |Share:

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Data Release: Small business optimism continuing to recover gradually in July

  • The NFIB's small business optimism index rose 0.1 points to 94.6 – slightly above the consensus view which called for a flat reading. Although this marked the fourth consecutive monthly gain, the index level remains some five points below the pre-recession average.
  • Looking under the hood the details of the report were mixed. Four of the ten subcomponents rose on the month, four fell and two remained unchanged.
  • The biggest gains were recorded in the share of firms expecting the economy to improve (up 4 points to -5%) and those planning to add inventories (up 3 points to 0%). Although both are very encouraging developments, the current readings remain well below healthy levels. In reality, they suggest no serious plans to add to inventories and that more firms (on the net) still expect the economy to weaken than strengthen.
  • Employment sub-indicators were slightly mixed but continued to point to tightness in the labor market. Job openings lost some steam (-3 points) with 26% of firms reporting "positions not able to fill". Despite this, on a 3-month trend basis, job openings remain at the highest level since 2000. Additionally, plans to increase employment and raise worker compensation improved by one point each to 12% and 15% respectively. Even more encouraging is that both remain near post-recession highs.
  • Sales expectations and capital expenditure plans deteriorated one point apiece, while the share of owners stating "now is a good time to expand" remained unchanged. All three sub-indicators remain near levels observed over the last few months.

Key Implications

  • Small business optimism recorded its fourth consecutive monthly gain, making up some of the lost ground earlier in the year. The continued gains are encouraging, but their pace is somewhat muted with the headline print continuing to underwhelm.
  • Recent data releases, particularly on the labor market side, have corroborated the notion of modest economic growth with the domestic side of the economy remaining on a solid footing despite elevated global and political uncertainty. Today's NFIB report echoes this same message to some degree. Small business owners remain skeptical about the future and seem reluctant to invest with their appetite to do so likely further tempered further by political uncertainty during an election year.
  • On the other hand, businesses remain keen to continue hiring with labor market tightness and quality of labor issues increasingly reported. As such, plans to boost worker compensation and attract the appropriate employees remain well supported. Continued income and job gains, along with the windfall from still low energy prices, will continue to support consumer spending and help shore up business confidence and the rest of the economy over the medium-term.

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