The National Federation of Independent Business reported that its Small Business Optimism Index rose 1.8 points in April to a post-recession high of 95.2, crossing the 95 marker for the first time since 2007.
[IMGCAP(1)]However, the NFIB cautioned that while seven of the components of its index of small business owner sentiment had improved, one was unchanged and two of them actually fell.
“April’s index did pass the 95 mark that seemed to block any progress in optimism for the past five years,” said NFIB chief economist Bill Dunkelberg in a statement. “However, the index is still 5 points below the average reading from 1973 to 2008, and far from what is considered expansion levels. This reading can only be characterized as a high end recession reading.”
“Small business confidence rising is always a good thing, but it's tough to be excited by meager growth in an otherwise tepid economy,” Dunkelberg added. “Washington remains in a state of policy paralysis. From the small business perspective there continues to be no progress on their top problems: cost of health insurance, uncertainty about economic conditions, energy costs, uncertainty about government actions, unreasonable regulation and red tape, and the tax code. So while the improvement is welcome, as long as small business owners continue to have negative views owners about the future, the 95 number may fade.”
The NFIB found that small business owners increased employment by an average of 0.07 workers per firm in April on a seasonally adjusted basis, which was weaker than in March but the seventh positive month in a row and the best string of gains since 2006.
The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months compared to the prior three months improved 4 points to a net negative 2 percent, far better than the negative 31 percent readings in 2009. This is the best seasonally adjusted reading since early 2012 when the economy temporarily reach a more normal growth path.
Expected real sales volumes posted a 2 point decline after a strong 9 point gain in March, falling to a net 10 percent of owners. While falling a bit, it is still the third highest reading since early 2012. Fifteen percent cite weak sales as their top business problem, high but approaching levels experienced in “normal” times.
Earnings trends improved 4 points to a net negative 20 percent (net percent reporting quarter to quarter earnings trending higher or lower), the best reading since 2007. Not seasonally adjusted, 15 percent reported profits higher quarter to quarter (up 3 points), and 41 percent reported profits falling (down 1 point). Rising labor costs are keeping pressure on earnings.
Two percent reported reduced worker compensation and 23 percent reported raising compensation, yielding a seasonally adjusted net 20 percent reporting higher worker compensation (down 3 points after a 4 point gain in March), but still among the best readings since 2008. A net seasonally adjusted 14 percent plan to raise compensation in the coming months, unchanged from February and March. The reported gains in compensation are now solidly in the range typical of an economy with solid growth. Although GDP growth in Q1 was less than expected (about zero), the small business sector continues to show signs of progress, small as they may be.
Credit continues to be a non-issue for small employers. In April, only 5 percent of the owners reported that all their credit needs were not met, 1 point above the record low. Thirty percent reported all their credit needs have been met, and 53 percent explicitly said they did not want a loan. Only 1 percent reported that financing was their top business problem (tied with the record low) compared to 22 percent citing taxes, 20 percent citing regulations and red tape and 15 percent citing weak sales. Small business owners are far more concerned about taxes, regulations and health care costs than financing issues.