Small Business Optimism Increased in August

The NFIB Small Business Optimism Index reached 95.9 points in August, up 0.5 points from July’s reading. Five of the ten components posted gains on the month, while three fell.

Business owners reported increased job growth in August as owners added a net 0.13 workers per firm in recent months, up from 0.05 reported in July. Fifty-six percent of owners reported hiring or trying to hire, but 48 percent of owners reported few or no qualified applicants for the positions they were trying to fill.

Capital spending declined in August, with 58 percent of businesses reporting capital outlays – down 3 points from July. Only 24 percent of owners are planning capital outlays in the next 3 to 6 months, unchanged from July’s reading, as owners expect a continuation of economic “under-performance.”

The earnings trends index improved 4 points in July, as the net portion of owners reporting higher earnings improved to a negative 15 percent. Reports of increased labor compensation remained at a net 23 percent of owners.

Credit conditions were satisfactory for small business owners. Three percent of owners reported that their borrowing needs were not met, down one percent from the previous month. Just one percent of owners cited financing as their top business problem compared to 5 percent during the great recession.

While business owners are not having problems accessing credit, a working paper from the Federal Reserve Bank of Philadelphia suggests that student loan debt is inhibiting the formation of small businesses, as enterprising graduates burdened with student loans are reluctant to take out additional debt to finance a business. Given that 6 in 10 new jobs are created by small businesses, this could have a major effect on the U.S economy.

Read the NFIB release.