Small business optimism edges higher in August
|Summary
Small business confldence rose 0.4 points to 100.1 in August, as five of the tencomponents of the NFIB Optimism Index improved during the month. The proportionof business owners planning to increase employment and inventories both rose by fivepoints, while the proportion of small firms planning to boost capital spending rose fourpoints to a net 30%. At first glance, the rise in small business confidence seems at oddswith other data reported for August, which noted economic conditions were weakening.Small business owners see this trend as well, with the proportion of firms expecting theeconomy to improve during the next six months falling eight points to a net -28%.
This past month's rise in small business confidence has more to do with the certaintyowners now see in taking defensive measures. Labor shortages, supply chains bottlenecksand higher prices are expected to be at least a semipermanent part of the economiclandscape, hence the rising share of firms boosting inventories at a time when a majorityof business owners feel economic growth will slow. Business owners are also hoardinglabor whenever possible, as 50% of owners report they have job openings that could notbe filled, an increase of one percentage point from July and a 48-year record high for thesecond month in a row.
NFIB optimism index improves in August
Small business confidence edged 0.4 points higher to a historicallyhealthy 100.1 in August. Business owners still see a very challengingroad ahead, however, with the proportion of firms expectingeconomic conditions to improve over the next six months tumblingeight points this past month to a net -28%. Business owners remainfrustrated by the inability to hire the workers they need. Supplychain constraints are another major source of frustration, with 37%of firms reporting that supply chain disruptions had a significantimpact on their businesses. Another 29% reported that disruptionshave had a moderate impact. Rising material prices are an often-cited issue as well, but so far businesses have been able to pass theirhigher costs onto their customers. Once consumers become moreprice sensitive, however, earnings will get squeezed, which is onereason firms are stocking up ahead of future price increases whilealso investing more in equipment so that they can automate tasksand reduce the need for labor over the long term.
The latest read on small business optimism suggests a largeproportion of business owners feel that supply chain shortages,hiring dificulty and rising prices are likely to persist for quite sometime. Plans to increase inventories, stafing and capital outlays whena majority of business owners expect growth to slow suggest thesemoves are defensive in nature, designed to protect market shareand profit margins. Owners are also striving to keep a step ahead ofrising raw material prices and shortages.
Small businesses are still struggling to find workers. The shareof owners who reported having a job opening that they couldnot fill rose to 50% in August, another record high. Pandemic-related constraints, such as childcare, COVID concerns, enhancedunemployment benefits and early retirements, have pressuredlabor availability for months. Some business owners may see somerelief now that expanded unemployment benefits have ended.That said, other constraints on labor show little signs of easingand are likely to persist. Nationally, the labor force participationrate has not materially improved for much of this year, suggestingthat employers are having a dificult time pulling workers off thesidelines.
Finding qualified applicants remains a problem as well. Ninety-one percent of small employers who were trying to hire in Augustreported having few or no "qualified" applicants. In addition, 28%of owners cited labor quality as their top business problem, uptwo points from July. Compensation plans have ramped up as aresult, as owners are raising wages in an attempt to attract workers.The share of owners actually raising compensation rose to 41% inAugust, another NFIB record high, creating infiationary pressures.Hiring challenges are likely to persist over the next few months.The Delta wave has reignited worker health concerns, pushed thereturn to office out further and raised uncertainty around in-personschooling.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.