Economic Snapshot: Small business optimism at historical highs for six months

The NFIB Small Business Optimism Index held steady at 104.5 in May, marking six straight months of historically high levels.

Five of the index components posted a gain, four declined and one remained unchanged.

The average employment change per firm was 0.34, which puts hiring activity in May near the highest levels in the 43-year history of the index. Fifteen percent of owners reported hiring three workers per firm, 9 percent reported cutting 2.3 workers per firm.

Fifty-nine percent of owners reported hiring or trying to hire in May, although 51 percent said they found few or no qualified workers. Nineteen percent of all owners in the survey said finding qualified workers was their top concern, making it the second-biggest problem for small business.

“The tight labor market has been a persistent problem for small business owners for the past several months, and the problem appears to be getting worse,” said NFIB Chief Economist Bill Dunkelberg. “It’s forcing small business owners to increase compensation, which we’re seeing in this data, to attract new workers and keep the ones they have. But it also means a lot of small business owners are short-handed. They can’t keep up with customer demand because the labor pool isn’t producing enough qualified workers. It’s a significant structural problem in the economy that policymakers will have to watch.”

Twenty-eight percent reported plans to make capital outlays, a one-point gain from April but well below historical levels for periods of growth.

“Typically, in a strong economy, we see a lot more spending on capital,” said Dunkelberg. “We’re seeing increased hiring activity and some other positive signs, but the capital-outlays component is the missing ingredient for robust economic growth.”

According to NFIB President and CEO Juanita Duggan, the answer is tax reform.

“If Congress wants small businesses to invest in the economy, then they must cut taxes and simplify the code,” she said. “The president’s tax plan would slash taxes for small businesses and level the playing field for businesses of every size and structure. Congress also has other good ideas for tax reform, but they need to stop talking and pass a bill.”