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First Cut: NFIB Small Business Optimism Index shrugs off uncertainty about trade and tariffs

The NFIB Small Business Optimism Index shrugged off the uncertainties about tariffs and rose to 140.7 in November, its highest since the 104.7 in July. Businesses appear to have accepted that trade policy is unsettled and could remain that way for a while. They are just going to get on with conducting their business as best they can under current conditions. If uncertainty about the future is still present, it is less than it was. Resilient businesses are taking it into account and forging ahead.

Modest expansion continues. If orders are soft from abroad, the US consumer is engaged in solid spending that should help extend the record length of the expansion. There is reason to hope that the tight labor market and rising wages will continue to exert positive pressure for growth.

Nine of the 10 index components were up in November. The largest increases were in satisfaction with current inventories (up 7 points to 1%) and now is a good time to expand (up 7 points to 29%). The rare positive reading for inventories was the first since 1% in April 2013. This might hint that unwanted inventories had not accumulated from slower conditions. Moreover, plans to increase inventories were up a tad (up 1 point to 3%) which suggested that small businesses are not going to try to draw down current inventories before restocking. The increase in the earnings trend (up 5 points to 2%) was the first positive since 1% in August 2018, just when the slowdown in growth was starting to be felt. This is another indication that present conditions are seen as on the upswing.

To reiterate what was in the NFIB Jobs Market Report for November from December 6, small businesses are hiring where they can find workers. There are plenty of job openings (up 3 points to 38%) and plans to increase employment were higher (up 4 points to 21%). The report noted that businesses are facing shortages of workers and a lack of qualified applicants for open spots. This means no let-up in the necessity to increase compensation (unchanged at 30%).

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