Today’s March release of the index of small business optimism declined for the second straight month, but when you put this decline in the perspective of the massive surge we saw towards the end of 2016 and into 2017, it is hardly a big cause for concern, at least not at this point. As shown in the chart below, the index came in at 104.7 this month, which was inline with expectations and just 1.2 points below its multi-year high of 105.9. Not only that, but the index is also well above its long-term average of 96.2 dating back to 2000. Looking into the details of the report this month, there were some comments suggesting that the surge in confidence from the last few months is translating into actual activity. As mentioned in the report, “there is growing evidence that this optimism is being translated into more spending and hiring, although not at explosive rates.” Hey, it’s a start.
As we do each month, we also wanted to summarize what issues small businesses consider to be their biggest problems. In this month’s survey, Taxes remain the biggest problem for small businesses, with a fifth of all respondents citing them as their biggest issue. That’s high but is actually down from 22% last month. Along with Taxes, Government Red Tape moved back into the second spot at 17% and is followed by Quality of Labor at 16%. Even though labor quality remains a pretty big problem, Cost of Labor still hasn’t seen as much of an uptick as one might expect. Equally notable is the fact that only 1% of small businesses cited Inflation as their biggest problem. With prices rising in the last year, we would have expected at least a small uptick in this reading.
On a final note, one aspect of this month’s report that we found interesting is the Uncertainty Index tracked by the NFIB report. In this month’s report, uncertainty increased from 86 to 93. Going back to 1975, that’s the second highest monthly reading in the history of the index, behind only the 100 reading that we saw back in November leading up to the election. The chart below shows the movement of this index going back to 1975. What strikes us as so ironic about this index is how it has generally trended upwards over time even as technology has advanced and countless hours have been spent researching and trying to smooth the business cycle. Have all these advances only made business more complicated?