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Small Business Optimism Exceeds Pre-Shutdown Levels

Andrew Martins
Andrew Martins
Staff Writer

A report says SMBs are reinvesting in their businesses, expecting higher sales and growth.

  • 64% of SMB owners reported capital outlays, marking the highest reading since February 2018, and 30% said they had plans for capital outlays in "the next few months."
  • Among respondents, 62% said they either hired or attempted to hire new personnel, but 54% said there were few or no qualified individuals to fill open positions. Both findings show a 5% increase.
  • Owners still exhibited high uncertainty levels, but officials said they were focused on a "very busy Main Street."

Optimism among small business owners hasn't been this high since before the government was shut down for 35 days from December 2018 until January 2019, according to the newly released Small Business Optimism Index for May 2019 from the National Federation of Independent Business (NFIB).

Conducted this past May by William C. Dunkelberg, NFIB's chief economist, and Holly Wade, director of research and policy analysis, the report is based on data collected from NFIB members. Each member was mailed a questionnaire regarding the current outlook on small business sales, employment, earnings and other major aspects of owning a business.

What the latest report found, officials said, was resurgent optimism, thanks to changes in Washington and a stronger economy.

"Optimism among small business owners has surged back to historically high levels, thanks to strong hiring, investment and sales," said Juanita D. Duggan, NFIB president and CEO. "The small business half of the economy is leading the way, taking advantage of lower taxes and fewer regulations, and reinvesting in their businesses, their employees and the economy as a whole."

Of the 10 indexes examined in the monthly report, officials said six showed an uptick, three remained the same, and one fell. Among those that saw increases were sales, business conditions and the environment for expansion. Capital spending plans also "increased sharply," officials said.

Growing labor markets

The NFIB's latest findings suggest that many small businesses are looking to expand. Approximately 62% reported either hiring or trying to hire people in May, marking a five-point increase from the previous month. Looking forward, approximately 29% of respondents said they planned to increase their total employment, while 3% plan staffing reductions. Approximately 32% said they had openings for skilled workers, and 16% said they have openings for unskilled labor.

Following recent studies from other sources that suggest the job market favors workers, the NFIB pointed to the fact that 52% reported "few or no qualified applicants." That number was also five points higher. Officials noted that 38% of respondents reported having job openings that they couldn't fill in the current period, remaining relatively unchanged from April. In the construction industry, 59% of small businesses said they had openings, and 93% were for skilled workers. As for temporary workers, 14% of respondents said they had used one in the past.

One of the more promising aspects of the monthly NFIB report, officials said, is the willingness of SMB owners to spend money on improvements. According to the report, 64% reported capital outlays, marking a six-point increase and the highest reading since February 2018.

A closer look into what business owners spent their capital on shows that 44% purchased new equipment, 29% purchased vehicles, and 19% improved or expanded existing facilities. Further, 6% said they purchased new buildings or land for expansion, and 14% purchased new fixtures or furniture.

Over the next few months, 30% of SMB owners reported expecting to spend even more money on capital outlays, setting a three-point increase and historical high. Among those plans, transportation needs ranked the highest (45%), with manufacturing (39%), professional services (39%) and construction (31%) following close behind.

Officials said this increased interest in spending has been consistent for the past two years.

"Small business owners are demonstrating a continued confidence in the strength of the economy and are betting capital spending dollars on it," Dunkelberg said. "This solid investment performance is supporting ongoing improvements in productivity and real wages."

Positive sales outlook

With a burgeoning yet troublesome labor market and continued business investment, SMB owners are optimistic for potential increases in sales. According to the report, "a net 9% of all owners (seasonally adjusted) reported higher nominal sales in the past three months." While that figure is unchanged from April, it remains a historical high.

Similarly, the number of owners expecting higher real sales volumes increased by three points to 23%. "The pace of economic growth is solid, and consumers as well as business-to-business are an important source of the improvement in sales," the report said.

When it came to inventory increases, things remained relatively flat. A net 2% (seasonally adjusted) reported increasing their inventory, but officials said that was "consistent with the significant buildup in the first quarter." The number of owners who see their current stock as "too low" was at a net negative 4%. Officials said they found that owners were "ready to place new orders and build some inventory in anticipation of stronger real sales."

SMBs planning wage increases

While conditions are looking up for the average SMB owner in the NFIB's latest report, workers can expect to see some of the positivity come their way as well. According to the report, 34% of all firms reported providing higher worker compensation, though that number is largely unchanged from the previous report.

Additionally, 24% of respondents said they had plans to give their workers a wage increase, marking a four-point increase. "Overall, reports of rising compensation are holding at historically high levels," officials wrote on the matter.

Among SMB owners' top business problems was the 25% of respondents who said "quality of labor" was an issue. That problem ranked higher than taxes or regulations.

Image Credit: Syda Productions / Shutterstock
Andrew Martins
Andrew Martins
Business News Daily Staff
Andrew Martins has written more than 300 articles for business.com and Business News Daily focused on the tools and services that small businesses and entrepreneurs need to succeed. Andrew writes about office hardware such as digital copiers, multifunctional printers and wide format printers, as well as critical technology services like live chat and online fax. Andrew has a long history in publishing, having been named a four-time New Jersey Press Award winner.