U.S. small business confidence index rises in January

U.S. small business confidence began 2018 on a strong note. The NFIB’s small business optimism index was up 2 points to 106.9 in January, staying close to the top end of historical highs. The monthly print surprised on the upside, with market consensus anticipating an almost-flat reading.

The rises were widespread, with six of the ten sub-indicators rising, two remaining unchanged and two declining. Markedly, the share of companies recording improved earnings rose sharply by 11 points, while the share of companies that think “now is a good time to expand” also increased an impressive five points to a new all-time high of 32 percent.

Expectations regarding a rebounding economy and intentions to increase inventories rose 4 points each to 41 and 3 percent respectively. Capital outlay plans also grew, rising two points to 29 percent. On the labor front, “unfilled job openings” rose 4 points to 34 percent, while plans to increase employment stayed a 20 percent. In spite of a positive employment view, businesses continued to report difficulty in finding quality workers. Quality of labor concerns rose to 22 percent, surpassing taxes as the main worry among small business owners.

To appeal and retail new talent, businesses stimulated current and planned worker compensation. The share of companies increasing compensation in January rose 4 points to 31 percent, while the share of companies planning to do so ahead, rose to 24 percent. A larger proportion of companies also increased prices, while plans to do so in the near-future stayed comparatively unchanged.

The survey results show that small businesses stepped into 2018 in good spirits.

“In order to attract and retain talent, business will need to keep boosting worker compensation – a trend highlighted in today's report. Ultimately, this trend bodes well for the inflation outlook, and serves to reinforce the notion that the Fed will continue to tighten monetary policy ahead, with a March hike as the most likely scenario”, stated TD Economics.

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