The small business optimism index rose 0.1 points in August to 105.3, matching the highest level since the 12-year high set in January. Beating consensus forecasts calling for a small decline from the also surprisingly strong July reading, August's optimism reflected increases in the proportion of small business owners planning capital expenditures and anticipating higher sales. Capital expenditures plans in the next 3 to 6 months reached their highest level since 2006, the NFIB said.
Of the 10 components making up the index, 4 increased, 5 declined and 1 remained unchanged. Leading the gains were sales expectations, rising 5 points to 27, followed by capital expenditure plans, up 4 points to 32, and now is a good time to expand, at a net 27 percent also up 4 points. Easier credit conditions rose 1 point but remained negative at minus 3.
Capital expenditure plans were most common among professional services companies, at a net 46 percent and manufacturing, at a net 38 percent, but wholesale trades, agriculture and construction did not lag far behind, ranging between 33 to 36 percent.
The employment front retreated while remaining at high expansionary levels, with job openings declining 4 points to 31 and job creation plans 1 point to 18. Inventories were also a drag on the index in August, as inventory plans fell 3 points to 2 and while inventory satisfaction was down 4 points to a minus 5. Earnings remained the most pessimistic of the components and fell further back by 1 point to a minus 11.
Small business owners remained exceptionally optimistic in their expectations of better business conditions ahead, with the reading remaining unchanged at a net 37 percent to maintain its leading position among the components.
The August report's rise in capital expenditure plans bodes well for sustained small business growth and future employment gains, and also promises gains in productivity, which has risen at a disappointing pace during the current recovery. September's optimism reading, however, is likely to reflect the negative impact of Hurricanes Harvey and Irma on the affected regions.
Recent History Of This Indicator
Led by strong hiring and strong sales expectations, the small business optimism index moved back up to expansion highs in July to a 105.2 level that easily beat expectations. Econoday's call for August is a modest step back, to a consensus 104.5.
The small business optimism index is compiled from a survey that is conducted each month by the National Federation of Independent Business (NFIB) of its members. The index is a composite of 10 seasonally adjusted components based on the following questions: plans to increase employment, plans to make capital outlays, plans to increase inventories, expect economy to improve, expect real sales higher, current inventory, current job openings, expected credit conditions, now a good time to expand, and earnings trend.
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