February 2019 Small Business Optimism

Small business optimism stopped its recent decline in February 2019 according to the National Federation of Independent Business.  This index of 10 components rose 0.5 percentage point to 101.7 after falling for five consecutive months.  This mild uptick is a welcome reprieve from the recent trend.

Half of the indicator’s factors were positive, three were unchanged, and two declined.  More firms expect to make capital outlays than a month earlier, boding well for gross domestic product (GDP).  Expectations for an improving economy also gained in the period.  Those characterizing inventories as too low ticked up marginally as well which should also prove beneficial to GDP as the shelves get restocked.  A growing number of companies believe now is a good time to expand even as there is an increase in job openings likely caused by a lack of qualified workers.  Despite a growing number of job openings, plans to increase employment further declined as did earnings trends.

This measure of Main Street USA was quite hot after the last presidential election.  However, it has been losing steam since August 2018.  Despite the recent downtrend, this segment of the economy is far from crashing, but they no longer feel like output is booming.  Perhaps they will regain some of their gusto now that things are normalizing after the partial government shutdown, and the Federal Reserve has toned down their hawkish (restrictive) rhetoric.