Trade wars. What trade wars?  While markets are freaking out about the latest tweets from the President related to trade tensions with China, small business owners are grinding away and becoming increasingly confident after sentiment took a hit late last year and earlier this year due in part to the government shutdown and tighter Fed.  In this month’s report from the NFIB, overall sentiment came in at a level of 103.5 compared to expectations for a reading of 102.0 and last month’s reading of 101.8.  We’re still quite a ways from the cycle high of 108.8 reached last August, but also still comfortably above the historical average reading of 97.1.  In the words of the NFIB, “Overall, the Index remains at a historically very strong level, consistent with solid growth, keeping the economy at full employment.  There is no recession in sight this year.”

In each month’s report, one area we like to focus on is the section of the report where small business owners are asked what the single most important problem they face is.  In this month’s survey, Labor Quality continued to top the list with nearly a quarter of respondents saying they are having difficulty finding qualified workers.  That’s up from 21% last month and isn’t far off the record high of 25% we saw in August and November of 2018.  As shown in the chart below, there have only been three other months in the history of this report where either as large or a larger percentage of small business owners cited Labor Quality as the biggest problem.  The first was in May 2000, while the other two were in the second half of 2018.

Strangely enough, while Labor Quality is a big issue, the cost of labor has been much less problematic as just 8% of small business owners cited it as their most important problem.  That’s unchanged from March and is right in the range of where it has been for the last two years.  That’s a positive from an inflation perspective as wages play such a large role in prices and with just 1% of small business owners citing inflation as their biggest problem, they don’t seem particularly worried about the prospect of rising prices.  Start a two-week free trial to Bespoke Institutional to access all of our research and interactive investor tools.

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