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AAM Viewpoints – Small Business Optimism Posts a Third Year of Strong Readings

Over the past few years I’ve written about trends in small businesses based on the National Federation of Independent Business (NFIB) Survey of Small Business Economic Trends. I follow these trends because I come from a family with multiple generations of small business owners and small companies in the United States create about two-thirds of net new jobs, drive innovation and account for 44% of U.S. economic activity. This survey has a 46-year history of tracking insight of more than 325,000 small business owners and provides valuable insight related to Small Business Optimism, Labor Markets, Capital Spending, Inventories and Credit Markets in businesses across the country. This survey also serves as a counterbalance to the large company bias of the Purchasing Managers Index.


NFIB optimism index


Source: National Federation of Independent Business

Although the December Optimism Index reading dipped to 102.70, January reflects a recovery back to 104.3 and ranks in the top 10% off all readings and well above the historical average of 98. 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 and finished 2018 with an all-time record average monthly index reading of 106.6 which surpassed the previous record of 104.8 from 2017. The key drivers for the most recent reading were improved expectations for higher nominal sales in the next three months, actual earnings trends and job creation.

Labor Markets

NFIB compensationNFIB employment

Source: National Federation of Independent Business

The survey highlights that small businesses continue to create new jobs with an average addition of 0.49 workers per firm, the highest level since March 2019. The shortage of qualified workers remains an issue with 26% reporting this as their number one challenge. This could drive up costs by increasing average hourly wages and slow the growth of employment. The January survey showed 56% of the respondents reported they were hiring or trying to hire and 49% of those trying to hire reported difficulty in finding qualified workers. This is an improvement from last December but remains a challenge as 26% reported the difficulty finding qualified workers as their most important business challenge.

Capital Spending

NFIB capital expenditures

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% and the most recent reading is up slightly to 63%. Spending includes new equipment, vehicles, expanding or acquiring new facilities and 28% of respondents, up from 25% last year, plan capital outlays in the next few months.


NFIB Inventories

Source: National Federation of Independent Business

The survey revealed the number of small businesses increasing inventories rose in January as did the number of owners planning to expand inventory holdings. This inventory expansion is also reflected in Institute for Supply Management (ISM) Manufacturing Report on Business New Orders and suggests expected growth again this year.

Credit Markets

NFIB Credit Conditions

Source: National Federation of Independent Business

While 54% (up from 50% in 2018) of the respondents said they had no needs for a loan, 30% reported their credit needs were met, and only 1% reported loans were a top business problem. This indicates favorable credit conditions and suggests the expansion will continue.


The recent trends of NFIB data is remarkable and seems to indicate that the small business sector will continue to be an important contributor to overall economic growth in 2020. These small business surveys provide valuable insight and clearly paint a different picture than owners presented before the 2016 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.”

unemployment level/job openings

In 2019 small businesses added 1.8 million new jobs and employ 47.3 percent of the private workforce. While the domestic labor market has posted 10 straight years of gains, job postings have exceeded the number of unemployed people since January 2018, and although the number has decreased recently, there are 670,000 more job postings than unemployed people in the United States.

privately owned housing starts/new private housing units

In addition to employment, it’s important to consider data such as housing and manufacturing when evaluating economic strength especially in an environment with so many near-term risks. Everything from coronavirus fears, trade negotiations, geopolitical risks, $13 trillion in negative-yielding debt and the upcoming U.S. election will contribute to volatility in 2020. Even with the potential for volatility I believe the outlook for 2020 appears positive as housing starts for December were revised up to 1.626 million units which is the highest level since December 2006 while building permits surged to a 13-year high in January. The National Association of Home Builders (NAHB) Housing Market Index also reached a 20-year high in December and remains at levels not seen since 1999.

Three consecutive years of strong small business survey results is encouraging and when considering the growth prospects for 2020 I would suggest reviewing two last data points that are improving. The Conference Board Leading Economic Index increased substantially in January after negative readings in four of the previous five months and the ISM Purchasing Managers Index recently moved up to 50.9 for January after a 47.8 in December of 2019. This is the first expansion of manufacturing since last July and should be watched. These are just a few factors that could help keep the longest economic expansion in history on track and small business will play an important role.

CRN: 2020-0203-7993R

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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