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NFIB Index of Small Business Optimism Highest Since 2007

May 9, 2012 By Young Research

The Index of Small Business Optimism from NFIB rose 2 points in April to 94.5, the highest index value since 2007. This is the second time the index has reached 94.5 since 2007, reaching it once before in February of 2011.

Despite the improvement in the index, overall index levels are not cause for optimism. The NFIB commentary on the index states:

“The Index continues to hold at the higher values of what would be considered recession level readings. Optimism has been unable to break out into expansion mode for years, producing a few false starts with no follow through.”

The commentary continues, pointing to uncertainty as the cause of pessimism among small business owners.

“Looking at the larger economic picture, there isn’t much reason for owners to become optimistic, the stock market is good, but the economy is bifurcated. The big tech, manufacturing and agriculture firms are doing very well as profits are at a record level. But that has not been the case on Main Street. Washington clearly is not going to address our fiscal imbalances and uncertainty is huge, about taxes, health care, new rules to help unions, energy prices, regulations and the election outcome. The Federal Reserve has taken policy into territory for which no maps exist; it’s not clear where its policies will take us.”

For the first time in history small business owners described government regulations and red tape as their single most important problem. Red tape was followed closely by poor sales and taxes as the three most important problems. The fastest growing single problem for small business owners was the cost and availability of insurance.

“Perhaps the most important information from the index concerns the labor market. The index indicated: some job creation is occurring, although a lot of it will be “below the radar” of government statistics for a while. Forty-seven percent of owners hired or tried to hire in the last three months and 34 percent (72 percent of those trying to hire or hiring) reported few or no qualified applicants for positions. The percent of owners reporting hard to fill job openings rose 2 points to 17 percent, a point below January, the highest reading since June 2008. Hard-to-fill job openings are a strong predictor of the unemployment rate and indicate that the rate would likely fall (as it did, to 8.1 percent), other things equal. Seasonally adjusted, the net percent of owners planning to create new jobs rose 5 percentage points, a nice gain which hopefully signals continued gains in actual employment per firm.”

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