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Add small business optimism to the list of sentiment surveys surging in the wake of November’s election as this month’s sentiment survey from the NFIB launched higher in December. According to the NFIB, its index of small business optimism surged to 105.8 from 98.4 in November and expectations of 99.1. As highlighted in today’s Morning Lineup, it was the 5th highest monthly reading in the history of the survey (going back to the 1970s) and the best reading since December 2004. Relative to expectations, it was also the best reading we have seen since at least 2009. With the caveat that the NFIB has a tendency to lean conservative, today’s report suggests that small business sentiment has kicked into a higher gear.
Almost all of the improvement in sentiment was driven by expectations rather than actual conditions in the field, though. As noted in the report, “Seventy-three percent of the gain in the Index was accounted for by more positive views about business conditions six months from December and improvements in real sales volumes. Improved views about the climate for expansion added another 15 percent, so more optimistic expectations account for 88 percent of the Index’s improvement, indicating little improvement in the other seven components and more importantly in the measures directly related to economic growth.”
As we do each month, the table to the right lists which issues small business owners consider to be their biggest problems. In this month’s report, the ‘old-reliables’ of Taxes and Government Red Tape top the list at 21% and 19%, respectively, and both also saw an increase in December. On the downside, Quality of Labor (-4) showed the largest decline followed by Cost of Insurance (-2), Cost of Labor (-1), and Inflation (-1).
Along with the fact that business owners are getting more optimistic, labor issues have become an increasingly less pressing issue. The chart below shows the historical combined percentage of businesses citing cost and quality of labor as their number one problems. Back in August, this reading surged to an all-time high of 24%. In just the last four months. though, it has declined to 17%, which is tied for the lowest reading since March 2015. If in fact small business sentiment about the future is accurate, one would expect to see labor cost and quality issues start to become more problematic as hiring increases.