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Surging small-business sentiment closes in on Reagan-era record

The numbers: The index of small-business optimism from the National Federation of Independent Businesses rose 0.7 point in February to a reading of 107.6, the second-highest reading in its history.

What happened: The index of sentiment among small-business owners has been on a tear ever since tax cuts were enacted. The headline number was stronger than the 107.1 reading forecast by economists surveyed by Econoday, and puts the index within a hair of its all-time record, set in 1983.

“The small business sector is very encouraged by the economic policies of the administration and the strength of the economy, willing to invest more and hire more if workers can be found to fill their open positions,” the lobby group said in a release.

Also read: U.S. adds 313,000 jobs in February in biggest gain in a year and a half

Big picture: In February, only one of ten index components declined, and three were unchanged.

Index componentSeasonally adjusted levelChange from last month
Plans to increase employment18%-2
Plans to make capital outlays29%0
Plans to increase inventories4%1
Expect economy to improve43%2
Expect real sales higher28%3
Current inventory-3%2
Current job openings34%0
Expected credit conditions-3%1
Now a good time to expand32%0
Earnings trends-3%1

For the first time since 2006, taxes received the fewest votes as owners’ #1 business problem, NFIB said. In contrast, the lack of qualified workers was respondents’ biggest problem.

Reports of improved earnings trends were the highest since 1987, inventory investment was the strongest since 2000, and capital outlays were the highest since 2004.

“Small business owners are telling us loud and clear that they’re optimistic, ready to hire, and prepared to raise wages – it’s one of the strongest readings I’ve seen in the 45-year history of the Index,” said NFIB Chief Economist Bill Dunkelberg. “Small businesses are flourishing in a way we haven’t seen in over a decade.”

But as previously reported, some economists doubt that the recent uptick in sentiment will translate into much of a GDP boost, since small businesses have been hiring and spending on capital more than the dour sentiment readings from the industry group would suggest.

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