U.S. small business optimism rebounds above expectations in January

The U.S. small business optimism recovers in January. The NFIB’s small business optimism index rise 1.6 points to 104.3, rebounding from a two point fall in December. The reading came above market expectations of a reading of 103.5.

Delving into details, six of the 10 subcomponents rose on the month, two dropped and two stayed the same. Gaines were led by a rebound in firms’ expectations of higher real sales rising seven points to 23, the highest reading since May last year. Also, firms’ outlook improved too, with the net share of companies reporting a rebound rising 5 points. Firms thinking that now is a good time to expand also rose to 28 percent. Current inventory rose 1 point to -3 percent and companies planning to increase inventories also rose one point to 4 percent.

However, companies expecting the economy to rebound dropped by two points to 14 percent, while those expecting credit conditions to ease fell to a net -4 percent. Firms expecting to make capital outlays continued to be the same relative to the previous month.

Labor market indicators came in mixed. Companies planning to increase employment remained the same at 19 percent, but those planning to raise worker’s compensation roe to 36 percent. Job creation rose as well, with an average addition of 0.49 workers per firm, the highest level since March 2019.

“While small businesses may be looking to expand, a tight labor market may tap the brakes, as filling positions become more difficult. What's more, firms are having to increase compensation to attract workers. With the U.S. unemployment rate at a near 50-year low, this problem seems set to continue for the foreseeable future and firms may continue to face issues of finding the skills they need to drive production”, said TD Economics in a research report.