U.S. small business optimism index rises above expectations in August

U.S. small business optimism came in above expectations in August. The NFIB’s small business optimism index rose 0.9 points to 108.8, a new record breaking the reading of 108 that was set 35 years ago.

Most of the subcomponents rose in August. Plans to increase inventories rose 6 points to 10 percent, while plans to make capital outlays rose to their highest levels since 2005. The headline print was not the only subcomponent setting new records. The share of small business owners that believed that ‘now is a good time to expand’ tied the May 2018 all-time high, noted TD Economics in a research report.

Meanwhile, a few subcomponents dropped modestly in August. Expectations for a rebound in the economy and higher real sales recorded a fall in the index. However, they continued to indicate some of their best results in years.

Labor market indicators came in overwhelmingly positive. Plans to increase employment rose three points to 26 percent and current job openings rose one point to 38 percent. Worries about the quality of labor continued to be on top of mind and the share of businesses reporting few or no qualified applicants continued to be elevated at a record 55 percent. The share of companies raising and planning to raise worker compensation continued to be at the highest levels since around 2000.

The readiness to expand among small businesses is encouraging, a theme highlighted by hiring plans rising sharply to the highest level on record in August and capital outlay plans – an indicator that has generally lagged behind in the recovery – rising to the highest level since 2005, noted TD Economics in a research report.

Businesses are likely to keep stimulating compensation in order to retain and attract talent. Larger paychecks might pull more workers from the sidelines.

“Barring major disruptions on the trade front – referring to action rather than rhetoric – this vibrancy will continue to warrant higher interest rates, with another quarter point hike in the federal funds rate likely to come later this month”, added TD Economics.

At 15:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at 5.19522. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex