U.S. small business sentiment rises in January, policy changes to help sustain confidence in near-term

Small business confidence in the U.S. rises in January. The NFIB’s small business optimism index was up 0.1 points to 105.9 in January, coming in above market expectations that had called for a drop to 105. This is the fourth straight monthly gain, affirming that the sharp rise in optimism after election continues to be intact. The report details came in mixed as half of the sub-indicators rebounded, while the other half dropped on the month.

The recent upswing in sentiment has been accompanied by considerable rebounds in three major subcomponents – projections of higher real sales, expectations about the economy and whether ‘now is a good time to expand’. The latter rebounded by two points on the month while the first two subcomponents dropped by 2 points each. However, all three stay quite elevated as compared to the performance of recent years.

Indicators for labor market stayed pretty positive. Unfilled job openings and the share of companies intending to raise employment was up two points each to 18 percent and 31 percent respectively. Markedly, the share of companies increasing worker compensation was up 4 points to 30 percent, the highest since 2007.

In the meantime, the share of companies intending to increase worker compensation dropped 2 points but stayed at a high level at 18 percent. The sub-index of uncertainty stayed the same at 85 points.

Positivity amongst small business owners trumped market projections for a downtick and continued to ride high in January. The headline print, along with survey details, implies that the recent rebound in sentiment would have some staying power if the sought-after policies get implemented, noted TD Economics in a research report.

Changes in policy are likely to help sustain sentiment in the near-term. The President has been keeping his promise to alleviate regulatory burdens for small businesses by signing an executive order that requires agencies to cut two existing regulations for every new one introduced. But extended lags in the political process might temper optimism in the months ahead, stated TD Economics.

At 5:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 114.822. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex