U.S. small business confidence falls in December

U.S. small business confidence drops in December. The NFIB’s small business optimism index dropped 2.6 points to 104.9 in December after rising 3.7 points in November. The December print was a bit lower than expectations. However, the December result is still at the top end of historical highs, while 2017 as a whole marked an all-time high.

Half of the subcomponents dropped in December, while two rose and three continued to be the same. The most notable declines were to expectations regarding a rebound in the economy and higher real sales. Meanwhile plans to increase inventories also pulled back noticeably. In spite of the declines, the first two continue to be elevated relative to recent history.

Job openings rebounded a bit, rising one point to 31 percent, while hiring plans dropped 4 points to 20 percent, giving back part of the six-point gain in the month prior. The December dropped in hiring plans came as businesses reported considerable difficulty in finding qualified workers. The share of companies recorded few or no qualified applicants for job openings rose 10 points to 54 percent, which is a new record high.

Businesses are enhancing their composition plans in order to attract and retain qualified workers. The share of companies planning to increase worker compensation was up 5 points to a 23 percent. The latter could be volatile but the recent trend continues to be encouraging. In the meantime, the share of companies currently raising worker compensation continued to be unchanged at a decent 27 percent.

Among the remaining indicators, capital outlays plan saw a slight improvement, rising 1 point to 27 percent. In the meantime, the share of firms making a capital expenditure in the past six months rose to 61 percent, after holding stable at 59 percent in the past three months.

The recent positive trend in confidence has been accompanies with increased difficulty in finding qualified workers, with the share of companies recorded few or no qualified applicants for job openings reaching a new record high in December.

“In order to attract and retain talent, businesses will need to raise wages, a trend evident in today's report. Businesses will have an improved ability to do so thanks to tax reform which will lower some of the tax burden (such as through a 20 percent deduction in pass-through income in many cases)”, noted TD Economics in a research report.

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