US small business confidence possibly recovering, but political uncertainty to weigh on sentiment in 2016

The US NFIB small business optimism index was up 1 point in April to 93.6 after dropping for three straight months. The index was a bit above market projections of 93. However, in spite of the rebound, the index continues to be lower than the previous cyclical peak of 100.3, which was registered in December 2014. Delving into details, out of 10 subcomponents, five rose in April, four stayed the same, while one registered a marginal fall.

Indicators for labor market continued to be strong. Job openings and intentions to boost employment, following a slowdown in the past few months, rebounded in April. Job openings index rose by 4 points to 29, whereas intentions to increase employment was up by 2 points and reached 11. Moreover, the share of companies increasing compensation for workers was up 2 points to 24. Meanwhile, the share of companies ‘planning to raise’ compensation dropped 1 point to 15.

The April’s report is quite upbeat and implies that the small business confidence might be recovering after having a downward trend for three months, noted TD Economics in a research note. The growing positivity amongst small business owners might reflect the fading concerns of a near-term recession as the US and global economy seems to be gathering momentum.

Developments in the US economy, such as continued rebound in the labor market underpin the optimism in small business. However, the political uncertainty might be a drag on the confidence in 2016. With a steady increase in oil prices and stabilization of the trade-weighted value of the US dollar in 2016, labor market tightening will boost wage growth and move inflation closer towards the US Fed’s 2% target rate.