March 2018 Small Business Optimism

Small business enthusiasm cooled some in March 2018 according to the latest release from the National Federation of Independent Business (NFIB).  This optimism indicator declined to 104.7 versus 107.6 in February.  March’s deceleration follows a level near a 45-year high, so this monthly setback is not alarming, but it is worth noting declines were pervasive. 

Eight of the ten components fell in the period.  A notable decline came from the percentage of business owners expecting the economy to improve.  Additionally, those expecting higher real sales dropped quite a bit as well.  More subdued declines were noted in five categories: now is a good time to expand, expected credit conditions, plans to increase inventories, current inventory, and plans to make capital outlays.  Finally, the earnings trends segment fell marginally.  The other two segments (plans to increase employment and current job openings) rose slightly. 

In addition to the ten components above, the NFIB inquires with business owners about their number one problem.  For the first time since 1982, taxes received the fewest number of votes.  This category has been falling since November 2017, just before the latest tax bill passed. That is not to say they are without issues.  Right now, small business owners are struggling to find qualified applicants for their job openings.  Some (a net 19 percent) are planning to remedy this issue by raising wages to compensate for the tight labor market.

This iteration of the survey is one of the best ever.  The NFIB has been doing this for 45 years, and March’s release is in the top five percent despite the setback.  In fact, this indicator has been in the top five percent in each of the past 16 months.  Summing it all up, small business owners are very optimistic by historical standards.