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First Cut: NFIB Small Business Optimism Index contradicts developments in July

The NFIB Small Business Optimism Index rose to 104.7 in July from 103.3 in June. Businesses seem to contradict concerns about risks to the economic outlook from trade policy and more focused on finding workers to keep activity humming. The stability in credit conditions doesn’t hurt their positive view either. If present activity is soft, small businesses are still hopeful that the situation will improve.

The index had increases in seven of 10 component, two were down, and one was unchanged. The strongest increases were in expectations for higher sales (up 5 points to 22% in July), expectations for the economy to improve (up 4 points to 20%), and current job openings (up 3 points to 39%). Basically, small businesses are anticipating sales to continue to regain upward momentum supported by solid economic activity and will need to find workers now to meet that demand. If conditions are not at the levels seen in much of 2017 and 2018, relative to historical readings, the economy looks good to small businesses.

The report noted that it is a lack of of available qualified workers that is holding back filling job openings. Plans to hire new workers remains about on trend (up 1 point to 21% in July), while the necessity to offer higher actual compensation is still present (up 4 points to 32%).

Small businesses have been less than satisfied wtih current inventories (down 3 points to -3% in July), but the reading does not suggest more than a normal level of inventories after some reductions in earlier months to adapt to slower conditions. Plans to increase inventory were unchanged (3% in July and June).

While it did not make a lot of difference, high anticipation of a rate cut from the FOMC at month-end helped keep expected credit conditions little changed in the past few months (down 1 point to -4% in July) and consistent with with an environment in which credit is available.

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