August 2017 Small Business Optimism

Small business owners continued feeling ebullient in August according to the National Federation of Independent Business (NFIB).  Increasing one-tenth of a percentage point, the Small Business Optimism Index matched its highest reading in 12 years, reaching 105.3 in August 2017.  Details in the report were mixed, but the magnitude of the rate of change for rising categories was greater than that of falling components.

Despite the improved headline figure, just four of the ten components increased in the period.  Firms appear to be gaining confidence in the business climate as those planning to make capital outlays increased by four percentage points to a net tally of 32 percent.  Expectations for higher sales improved to a net total of 27 percent, gaining five percentage points.  A net 27 percent also believe now is a good time to expand, rising four percentage points.  Expected credit conditions, the final category which improved, managed to reach a net total of minus three percent, a gain of one percentage point.  Ironically remaining at 37 percent, there was no change in the net percent of those expecting the economy to improve.

Of course, some categories did not fare as well.  There was a one percentage point drop in the number of businesses planning to increase hiring.  Likewise, earnings trends fell a percentage point.  Both inventory categories declined, and current job openings dropped. 

From Atlas’ perspective, the most important takeaway from this report is the increase in capital investments.  Smaller firms are less able to weather financial storms, so they tend to be reluctant to make investments in expensive equipment unless they believe an economic expansion will continue.  Seeing the capital outlays category jump four percentage points suggests a growing number of business owners are feeling more secure about the business cycle's upward trend.  Adding to this evidence, the category of "now is a good time to expand" recorded a similar uptick.  According to data from the NFIB, small business owners have been skeptical throughout this recovery, but that sentiment could be fading.