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AAM Viewpoints - Small Business Optimism Marks the 2nd Year of Historic Readings

The December 2018 National Federation of Independent Business (NFIB) Survey of Small Business Economic Trends revealed a second year of historic readings which surpassed record levels achieved in 2017. The NFIB is the largest small business association in the country and has a membership base of more than 325,000 small business owners. The NFIB was founded in 1943 to protect the rights of small business owners and has collected small business economic trends data with quarterly surveys since the 4th quarter of 1973 and monthly surveys since 1986. These surveys provide valuable insight related to Small Business Optimism, Labor Markets, Capital Spending and Credit Markets in businesses across the country.




Source: National Federation of Independent Business

Although the recently released 101.2 reading for January was the lowest since the weeks leading up to the 2016 elections, it remains above the historical average of 98. It also shows small business owners do not like uncertainty as financial market instability and the government shutdown likely played a role. You may recall the small business confidence index rallied the day after the 2016 election from a below average reading of 95 in October 2016 to 102 in November. Fast forward to August 2018 and the index recorded its highest reading in history of 108.8 and finished 2018 with a record average monthly index reading of 106.6 which surpassed the previous record of 104.8 from 2017. The key drivers were current job openings at a new record high, job creation plans, and inventory investment plans. Additionally, capital outlays finished 2018 five percentage points higher than August and just eight percentage points below the high for this expansion.

Labor Markets



Source: National Federation of Independent Business

The survey highlights that small businesses continue to face a shortage of qualified workers and this is driving up costs while impeding the growth of employment. The December survey showed 60% of the respondents reported they were hiring or trying to hire and 90% of those trying to hire reported difficulty in finding qualified workers. 23% reported the difficulty finding qualified workers as their most important business problem. This forces owners to raise compensation to attract employees. 35% reported higher compensation in December, 24% plan increases in Q1 (1st quarter) 2019 and reports of higher worker compensation rose one point to a net 35% of all firms. Plans to raise compensation fell one point to a net 24%, just below the November reading, which was the highest since 1989.

Capital Spending


Source: National Federation of Independent Business

At the end of 2017, the NFIB survey revealed an anticipation of a substantial increase in capital spending with 61% of the respondents reporting capital outlays. In 2018 the number remained at 61%. Spending includes new equipment, vehicles, expanding or acquiring new facilities. 25% plan capital outlays in the next few months.

Credit Markets


Source: National Federation of Independent Business

While 50% (down from 52% in 2017) of the respondents said they had no needs for a loan, 32% reported their credit needs were met, and only 3% reported loans were a top business problem. This indicates favorable credit conditions and the expansion will likely continue.

The surge in 2017 & 2018 NFIB data is remarkable and indicates that the small business sector will likely continue to be an important contributor to overall economic growth in 2019. These small business surveys provide valuable insight and clearly paint a different picture than owners presented before the election. NFIB Chief Economist Bill Dunkelberg stated, “The 2016 election was like a dam breaking. Small business owners were waiting for better policies from Washington, suddenly they got them, and the engine of the economy roared back to life.”

The U.S. economy was strong in 2017 and even stronger in 2018 with our first consecutive GDP readings above 3% since 2014. The domestic labor market has posted 100 months of gains. Job postings exceed the number of unemployed people by 870,000. The Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index is off the 14-year highs, but it continues to signal growth in manufacturing. While the January ISM reading increased 2.3 to 56.6, it remains below the 60.8 reading in August. Further evidence of the strength of the economy can be seen in corporate profits, which remain strong, while cash holdings are growing. For those companies that do need to borrow, rates remain low and bank credit remains cheap. Business investment spending is strengthening and getting a boost from the energy industry. These factors indicate the private sector could provide significant contributions to overall growth and we believe the prospects for 2019 look very good. The second longest expansion in history looks to have more room to run.


CRN: 2019-0201-7223R


This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit



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