Small business owners have improved expectations for economic growth and a need to add to inventories according to the latest National Federation of Independent Business Optimism Index. Five of the 10 components of the index improved, led by a nine-point hike among those who said they expect a better economy in the coming months.
Seasonally adjusted, small firms produced solid growth in October, with 14 percent increasing average employment by 3.1 workers per firm, while 9 percent trimmed workforces by an average 3.5 employees. Fifty-five percent hired, or tried to hire, one or more workers. Twenty-seven percent reported unfilled job openings, another sign of tight labor markets. More than eight in 10 could find few or no qualified applicants for unfilled positions.
The top business problem for 15 percent of those responding was the availability of qualified labor, up another point and the highest reading since 2001. Normally, tight labor markets could renew concerns over wage driven inflation in the months to come if continues. However, the net-percent of firms raising average selling prices fell four points to 16 percent, seasonally adjusted. Since April, the net-percent raising average selling prices has declined 10 points. So far, small businesses have had to absorb their labor challenges and not pass them along in higher prices.
“Price pressures are fading, and it’s not just the construction sector that is bringing the pressures down,” said NFIB Chief Economist William Dunkelberg, “retail inflation is easing as well.”
The net-percent reporting earnings improvements lost six points from September, falling to the average for the year, no surprise in view of weaker reports of sales gains and a decline in the frequency of price hikes. A net 23 percent increased worker compensation, down five points from September.
Inventories, sales forecasts, and capital spending all remain strong. One-fifth of the owners surveyed said they believe the current period is a good time to expand facilities, up seven points from August. A net 11 percent expect business conditions to improve over the next six months, a 19-point gain over August. Owners are confident that the economy will continue to perform well in 2007.
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