Wednesday, February 14, 2018

Small Businesses Remain Highly Optimistic

Tuesday's report by NFIB on small business optimism for the month of January places the reading in the top five highest coming in at 106.9. According to NFIB the response to "Now Is A Good Time To Expand" was 32% and is the highest level for this category in the Indexes 45-year history. Today's strong NFIB report comes on the heals of a record level of optimism in 2017. NFIB President and CEO, Juanita Duggan noted,

“Main Street is roaring. Small business owners are not only reporting better profits, but they’re also ready to grow and expand. The record level of enthusiasm for expansion follows a year of record-breaking optimism among small businesses.”

NFIB's Chief Economist, Bill Dunkelberg noted,
“The historically high index readings over the last year tell us small business owners have never been more positive about the economy. This is in large response to the new management in Washington tackling the biggest concerns of small business owners – high taxes and regulations.”
A top concern for small businesses is finding qualified workers. In an effort to attract workers, higher compensation seems to be an avenue pursued by companies. Higher worker compensation rose four percentage points to 31% and the highest level for this reading since 2000.

As promised in an earlier post, below is an updated chart tracking the subsequent 1-year return for the S&P 500 Index following top NFIB optimism reading levels. The one year period following the December 2016 reading led to the best one year market return compared to the return following other top optimism reading levels. The market got off to a strong start following the November 2017 high reading, but has since pulled back with the market correction this month.

With optimism running high for small businesses and potentially higher wages for employees, both of these should serve as a tailwind for the economy in 2018.

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