Small business optimism saw a big jump in May, with the NFIB’s index of small business optimism rising to the second highest level in the history of the survey going back nearly 50 years. And if you think the NFIB isn’t excited about the recent uptick in its sentiment index, check out the size of the font on the home page. It’s huge!
The commentary of this month’s report was also quite positive and deservedly so given the strength. As NFIB President Juanita Duggan noted in the report, “Main Street optimism is on a stratospheric trajectory thanks to recent tax cuts and regulatory changes.” There were also a number of additional record readings in this morning’s report, including increases in compensation, positive earnings trends, positive sales trends, and expansion plans. The biggest challenges faced by small business owners these days is no longer tied to government regulations, red tape, or taxes, but instead to finding qualified workers.
The chart below shows historical readings of the NFIB Small Business Optimism Index dating back to 2000. After first breaking through its 2004 high back in November, the index has now made two marginal new highs and is way above its historical average of 96.7. While the initial surge following President Trump’s election was originally seen by some as being just a temporary move, it has had plenty of staying power at this point.
One section of the NFIB report that we like to follow closely is the issues that small businesses consider to be their number one problem. The table below lists the percentage of small businesses that cited each issue as their most important problem. Topping the list once again this month is the issue of Labor Quality, which was specifically called out in the commentary of the report. At 23%, this reading tied for its highest level on record and at a level not seen since late 2000. Behind Labor Quality, Taxes are still a decent-sized problem cited by 17% of small business owners, but it came down considerably from where it was in recent history.
As shown above, when it comes to monthly changes in the issues small business owners see as their most important problems, there tends to be little in the way of change, but over time these issues see big shifts. A case in point is labor issues and government red tape and taxes. The chart below compares the combined percentage of small business owners who cited Taxes and Government Requirements as their most important problem to the combined percentage who cited Cost and Quality of Labor as their biggest problem. As shown, the roles of the various problems have really shifted over time. As recently as early 2015, nearly half of all small business owners complained about taxes and red tape while very few business owners had any issues with labor issues. Now, though, we are in an environment where Labor is increasingly becoming the most important problem for business owners.