Although the NFIB Small Business Optimism Index remained quite strong at 103.1 in August after 104.7 in July, the composition of the index suggested that uncertainty about the economy in the near future dragged down the number. While the readings are by no means weak, they do suggest that small businesses are finding conditions less favorable and the outlook less positive.
Six of the ten component were down in August. The decline in expectations for the economy was particularly sharp (down 8 points to 12%) followed by expectations for higher sales (down 5 points to 17%). Anticipation of less vigorous economic conditions led to cutbacks in current job openings (down 4 points to 35%) and a dip in plans to increase employment (down 1 to 20%). Current inventories were cut (down 3 points to -6%) and plans to increase inventories were slightly softer (down 1 to 2%).
There were no changes in capital expenditure plans in August from July (28%) or in perceptions that now is a good time to expand (26%). There was an increase in the real earnings trend (up 4 to -1%) and a little improvement in credit conditions (up 2 to -2%).
None of these levels are out of line with conditions so far in 2019 where the slowdown in the domestic and global economies has kept activity in check relative to robust conditions in 2018 when the index hit record highs. However, that the index has failed to rebound decisively and in a sustained fashion probably means that small businesses are not going to see the same giddy expansion they had in 2017 and 2018.
The components related to the labor market suggest that businesses have either found workers for some open spots or have decided not to fill them at this time with current job openings down and plans to increase employment at a plateau for the past five months. The subcomponent for actual compensation was off (down 3 points to 29%) to its lowest level since 28% in June and 27% in December 2017. Fewer job openings and greater competition for those jobs may give employers some leverage in easing upward pressure on wages and salaries, and benefits. Employers may also be more worried about costs going forward and simply unwilling or unable to provide higher compensation at the same pace.
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