After a bit of a dip in December, sentiment on the part of small businesses rebounded in January but still came in shy of its November peak. While economists were expecting the January read of the NFIB Small Business Optimism Index to rise from 104.9 up to 105.3, the actual increase was much larger as the headline index came in at 106.9. While sentiment may be just off of recent highs, it remains well above the historical average of 96.6 since 2000.
The commentary surrounding this month's report was positive, to say the least. According to the NFIB President and CEO, "Main Street is roaring. Small business owners are not only reporting better profits, but they're also ready to grow and expand. The record level of enthusiasm for expansion follows a year of record-breaking optimism among small businesses." Additionally, 32% of small business owners believe that now is a good time to expand, which is the highest level in the history of the survey dating back to 1973. According to NFIB Chief Economist Bill Dunkelberg, the reason for the big boost to confidence we have seen over the last year "is in large response to the new management in Washington tackling the biggest concerns of small business owners - high taxes and regulations."
You can certainly make the case that these issues of high taxes and regulations are no longer the biggest obstacles facing small businesses. In each month's report, the NFIB asks respondents what the number one problem they face in their business is. The table below summarizes this month's responses compared to where they were last month. Based on January's data, small businesses are now having the biggest problem finding qualified candidates to fill open positions with 22% citing Quality of Labor as their biggest problem. With so many businesses having trouble finding quality workers, you would expect to see labor costs rising, but so far it doesn't seem to be that much of a problem as only 6% of small business owners cited Costs of Labor as their number one problem.
The fact that Quality of Labor moved into the top spot this month is notable for another reason. It also marks the first time in over five years that Taxes or Government/Red Tape weren't one of the biggest problems. As shown in the chart below, while those two problems have been slowly drifting lower in the last couple of years, problems regarding Labor Quality have been surging. One would think that it is only a matter of time before the higher wages that employers will have to pay to attract quality labor will become a problem.