Small Business Optimism Takes Sizable Fall From Record High

Depending on how you look at it, the latest National Federation of Independent Business (NFIB) report either shows a massive fall in optimism or continued positivity among small business owners.  Indeed the NFIB’s small business optimism index for March does show the largest drop its seen since 2015 but that drop comes after reaching a record high in February. While Seeking Alpha notes that economists were expecting the index to reach 107 for the month after hitting 107.6 in February, the actual results came in at 104.7. Still, in more than 400 months of the index, there have only been 20 months with higher scores than in March 2018.

Beyond the headline index score, the NFIB’s newest report included some interesting data. For one this report had the fewest number of small business owners ranking “taxes” as their number one concern since 1982. While 22% of those surveyed ranked taxes as their top business problem in November, only 13% did so five months later. That decline is almost certainly due to the GOP-backed tax bill that passed last year. NFIB President and CEO Juanita Duggan elaborated on that statistic, saying “This is the first time in 35 years where the fewest number of small business owners have told us that taxes are their number one business problem. They’ve been so optimistic that they feel confident enough to raise wages and invest in their business, which grows the economy.”

So what are business owners concerned about these days? “Quality of labor” was the top concern once again, although it fell a percentage point from February to reach 21%. Also down were “government red tape” (14%) and the aforementioned “taxes” (13%), followed by “poor sales,” which was flat at 11%. The concern seeing the biggest gain (aside from “other,” which grew by five points) was “cost of labor,” climbing to 8% in March from 6% in February. Looking to other recent reports, cost of labor could continues to be a concern for small business owners as a simultaneous slowing in hiring rate and an increase in wage rate growth suggest that businesses are being forced to raise their hourly wages in order to attract workers. Of course that assessment would also explain why quality of labor remains an issue for entrepreneurs in the current economy.

Speaking of the economy, NFIB Chief Economist Bill Dunkelberg attributes a lot of the recent growth to small businesses while also giving credit to various economic policies. “Small businesses have led the economy to what appears to become 12 months of three percent GDP growth,” he said. He went on to assess, “It is evident that the small business sector has responded positively to the current management in Washington and its economic policies,” he said.

Ultimately, despite the sizable drop the NFIB’s optimism index witnessed last month, it would be unfair to overlook the near-record high it also reports. It seems clear that the recent tax cuts have had a positive effect on small business owners’ confidence and willingness to make further investments. At the same time it seems likely that a contracting talent pool and climbing wages will be playing a bigger role in where the index goes in the coming months.

Author

Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

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