U.S. small business optimism index drops in April

The small business optimism index in the U.S. dropped in April, but came in above expectations. The NFIB’s small business optimism index fell 0.2 points to 104.5, as compared with the consensus expectations of 104. However, this was the third straight monthly drop. Still, the level of optimism has stayed at the top end of the range of historical highs since the end of 2016.

Moves in subcomponents of the index came in mixed, with three dropping, five rising and the rest staying the same. Expectations that now is a good time to expand and higher real sales rebounded two points each. However, expectations about the economy dropped markedly by 8 points to 38 percent. The three indicators stayed elevated, but the last two have reduced significantly from the cyclical peaks of 31 percent and 50 percent in December, noted TD Economics.

Capital investment plans fell 2 points to 27 percent, whereas intentions to raise employment stayed the same at 16 percent. On a trend basis, both are seeing some of the best readings since prior to the recession. But while hiring plans are usually near their pre-crisis peak, capital outlay plans are still lagging behind.

Other labor market indicators continued to be greatly positive, with unfilled job openings growing 3 points to 33 percent. The share of companies increasing worker compensation pulled back 2 points to 26, whereas the share of companies planning to raise compensation stayed the same at 18 with both index readings staying near post-recession highs.

The sub-index measuring the level of uncertainty dropped 10 points; however, 83 continue to be elevated and far from the historical median of 66.

The optimism level amongst American small businesses continued to ease in April, although just gradually. The optimism level is in fact very much positive in comparison to history with the increase in post-election optimism having some staying power. This is seen in an improvement in growth and hiring plans.  Moreover, the buoyant wage plans imply that wage inflation is expected to accelerate, noted TD Economics in a research report.

Overall, businesses continue to be relatively confident that now is a good time to grow; however, delays in political process seem to be easing expectations for immediate results with respect to a rebound in the economy and higher sales.