Small-Business Optimism Hits Record High, Beats Reagan Era

September 11, 2018 Updated: October 5, 2018

Small businesses are the most optimistic ever about their prospects, benefiting from tax cuts and deregulation under President Donald Trump, according to a survey by the National Federation of Independent Business.

The NFIB Small Business Optimism Index reached 108.8 in August, beating the previous record of 108, which dates back to the vigorous recovery of 1983 under President Ronald Reagan.

The NFIB has been producing the index since 1973, based on surveying some of its 325,000 members.

Of the index’s 10 components, job creation plans and job openings both set new records in August. Capital spending plans were the highest since 2007 and inventory investment plans the most robust since 2005.

“The small business engine continues to roar with the dramatic change in economic policies since November 2016,” the NFIB stated in the survey release (pdf).

In December 2016, the index jumped eight points to 105.7, and it has run an average reading since then of 105.8.

Significantly more businesses reported sales gains than sales drops (net 10 percent) over the past three months, especially in construction, manufacturing, the wholesale trade, and transportation. “They are booming,” NFIB wrote.

Vastly more businesses reported paying their people more versus those that reported paying less (net 32 percent) over the past three months.

The survey was responded to by 680 NFIB members.

Beyond Sentiment

NFIB noted the August index has more “muscle” behind it. While the index started a record run nearly two years ago, the optimism had been driven by the “soft” part of the index—inventory satisfaction, good time to expand, expected business conditions, sales expectations, and expected credit conditions. Now, however, the index hit a record high through its “hard” components—job creation plans, job openings, capital spending plans, inventory plans, and earnings.

“Now the Index is dominated by stuff that makes GDP grow,” the federation stated.

Labor Woes

While the economy bustles, 89 percent of small businesses that were hiring or trying to hire in August reported few or no qualified applicants for the open positions.

A record 25 percent of respondents selected quality of labor as their most important problem—more than taxes (15 percent) and regulations (13 percent).

With the unemployment below 4 percent and job growth continuing, there were more than 6.9 million job openings in July (pdf), with fewer than 6.3 million unemployed.

But there’s an additional 5.5 million jobless Americans who’d like a job, but haven’t looked for one in past four weeks and thus are not counted as unemployed.

The administration is trying to help Americans come off the sidelines and claim the millions of available jobs.

Learn a Trade

Trump has put his daughter and senior adviser Ivanka in charge of the National Council for the American Worker, a cross-department body started in July by the president to help train and retrain Americans and connect them with jobs.

There are over 40 training and education programs across 14 federal agencies, but “there’s no real accountability, there’s no real rationalization of these programs,” Ivanka Trump told Axios in an August interview.

The council should redirect resources to programs that show results, she said.

She also highlighted the president’s emphasis on vocational education.

College “is not the right path for everyone and should not be perceived as the only path for everyone,” she said.

The majority of jobs require only a high school diploma or a professional certificate, according to a 2014 Georgetown Center study (pdf).

“To be able to service the cloud may require 18 months of post-secondary credentialing, not a four-year college degree,” she said. “We also, in this country, have a great need for plumbers and electricians and welders, and these are occupations that are incredibly lucrative and in high demand.”

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