Business conditions expectations are looking better (although not great) according to small business owners who are at the leading edge of economic activity as its waves splash onto their economic playing field and recede. Financial markets are at record high levels, making many consumers wealthier. But on Main Street, conditions are not as rosy. Economic growth is weak, and talk of recession pervades the financial news. Traditional economic indicators (such as leading indicators and the yield curve) are still flashing red. NFIB’s Optimism Index has been in recession territory until very recently.
In January, the net percent of small business owners expecting better business conditions in the next six months soared to a net 47%, seasonally adjusted (Chart 1). This index component averaged only a net 20% during the previous four months, rising to a net 36% (seasonally adjusted) in July and a net 34% (seasonally adjusted) in August. Firms in the manufacturing, professional services, and wholesale trade industries reported the highest net percent anticipating improved business conditions in the next six months, whereas the agriculture and construction industries had the lowest (Chart 2).
Outlook for General Business Conditions. NFIB Small Business Economic Trends.
NFIB
Another good indicator of small business owners’ outlook on future business conditions is their willingness to invest in plant and equipment, and/or new workers. If planning to hire is a good indicator of confidence in the future economy, the most optimistic firms are in the construction and manufacturing industries, closely followed by firms in the wholesale trades. Capital spending is all about investing in the future. The leaders in planning capital investments are firms in the transportation, wholesale trades, and manufacturing industries, where over 30% of the firms plan to make capital outlays. These investments will raise labor productivity and increase efficiency, which are both helpful for the bottom line and worker compensation.
Optimism Index Components by Industry (NSA). NFIB Small Business Economic Trends.
NFIB
It appears that small business owners are not expecting a recession soon. Their hiring and spending will help move the economy forward, although not at a rapid pace. Hiring will continue to be weak due to both supply and demand constraints depending on the industry. Although hiring plans are generally strong, over 80% of those trying to hire reported few or no qualified applicants for their open positions, and success in filling positions will be limited. Many uncertainties cloud the outlook, but by year-end, the future should be much clearer.
