NFIB survey: Small business optimism surges in December, hiring remains flat

The monthly National Federation of Independent Business (NFIB) Index of Small Business Optimism surged in December to its highest level since 2004, with a jump of 38 points in the number of business owners who expect better business conditions in 2017.

“We haven’t seen numbers like this in a long time,” NFIB President and CEO Juanita Duggan said in a statement. “Small business is ready for a breakout, and that can only mean very good things for the U.S. economy. Business owners are feeling better about taking risks and making investments.”

The NFIB report was based on a survey of 619 small-business owners through Dec. 28. Small companies represent more than 99 percent of all U.S employers, according to the U.S. Small Business Administration. A small business is defined as an independent enterprise with no more than 500 employees. State-specific data isn’t available, but Sylvester Smith, Arkansas director of NFIB, said the national trends are reflected in the state.

“Small businesses aren’t going to invest in new equipment or facilities or create jobs unless they’re optimistic about the future,” he said. “So these results are very encouraging.”

The Index reached 105.8, an increase of 7.4 points. Leading the way was “Expect Better Business Conditions,” which rose from a net 12% in November to a net 50% last month.

“Business owners who expect better business conditions accounted for 48% of the overall increase,” said NFIB Chief Economist Bill Dunkelberg. “The December results confirm the sharp increase that we reported immediately after the [presidential] election.”

The other two big movers in the survey, “Sales Expectations” and “Good Time to Expand,” jumped by 20 percentage points and 12 percentage points, respectively.

“This is the second consecutive month in which small business owners reported a much brighter outlook for the economy and higher expectations for their businesses,” Dunkelberg said. “In this month’s report, we are also finding evidence that higher optimism is leading to increased business activity, such as capital investment.”

Sixty-three percent of respondents made capital outlays, an eight-point increase over November. Also, the net percent of owners reporting inventory gains increased six points.

“Business owners are feeling better about taking risks and making investments,” Duggan said. “Optimism is the main ingredient for economic expansion. We’ll be watching this trend carefully over the next few months.”

Despite sharply higher optimism, hiring activity remained flat in December. Job creation increased by 0.01 workers per firm and job openings dropped two points. According to the NFIB Jobs report, released last week, finding qualified workers remains a persistent problem for small business owners.

“The labor market is getting tighter,” Dunkelberg said. “That’s good news for workers because they can command higher compensation, but many small business owners aren’t yet confident enough to raise prices to offset the higher labor costs. Owners are still in a pinch, but the overall picture for December was very positive.”

TRUMP EFFECT?
Ray Lusk says expected regulation cuts under a Donald Trump administration will likely help businesses in general, and the election has made him more upbeat about 2017.

“I think we’re going to have business people running our country instead of politicians,” said Lusk, founder and owner of Little Rock-based Ray Lusk Plumbing. “And the new cabinet (Trump) has put together is nothing short of a dream team.”

Lusk says he hears similar sentiments from fellow business owners. He is a member of Central Arkansas Executives Association (CAEA), a networking group for business men and women and Lusk said enthusiasm about the start of a Trump administration is a majority opinion of the group.

“I think we have a huge amount of confidence in the new people who are going to lead our country,” Lusk said. “Compared to the leadership we’ve had over the past eight years, they couldn’t carry these guys’ water. The comparison is so far apart and that is where a lot of the optimism in the business world is coming from.”

Lusk Plumbing has about 30 full-time employees spread between offices in Little Rock (2), Sherwood and Bryant. While upbeat about a possible overhaul of the health care law, Lusk admits reform will be difficult no matter who sits in the White House.

“Is the new administration going to make great advances? Boy, it’s going to be tough,” he said. “I think they are our best hope to improve health care, but it’s going to be a real challenge. I don’t see any immediate improvements, but over the course of the president’s first term, there will be significant improvements.”

Lusk, who started the business in 1980, said the company’s sales through the holidays, normally a slow time, were higher than usual on the commercial and service side.

“This is our slow time and we had a record sales month in December on the service side,” he said. “And I am hearing the same from others in our industry. We are looking to have the best year we’ve ever had.”

Janalyn Williams, also a member of CAEA, expects her small North Little Rock floral business to thrive in 2017. She left a job in the nonprofit world when she purchased Hodge Podge Etc. in March 2015. Williams has since relocated the business to a 1,400-square-foot building on Main Street.

“We’re two blocks from the high school and two blocks from the funeral home, so that’s a pretty good location for a flower shop,” Williams joked.

Williams pays herself a salary – she didn’t pay herself a dime for about six months after buying the business – and Hodge Podge also regularly employs four others on a part-time basis. She said by the end of the year, her aim is to lighten her workload by either hiring another full-time employee, or adding increased hours to existing employees.

“My No. 1 goal for this year is to be able to not be present in the shop,” she said. “If I’m not here, then we don’t open, and I think that echoes a lot of small business owners. If I’m not here, it still needs to be business as usual. In time, it would be nice to phase out from every single phase of the business.”

Williams also expects to make capital outlays this year to make cosmetic upgrades to the building.

James Smith said it’s hard not to be excited about 2017 since the uncertainty of the presidential election has died down. Even though 2016 was his company’s best sales year yet, he says he definitely felt election pains.

“Everyone was uncertain and that resulted in decreased spending on what is considered non-essential purchased like furniture,” said Smith, founder and co-owner of furniture retailer James+James in Springdale. “For us, we just finished our fifth full year in business, with continual year-over-year growth. I have personally never been more excited about our future as a company.”

Smith said he is planning to invest “heavily” in product development and photography in 2017. In February, James+James will launch more than 25 new living room items, from coffee tables to bookshelves.

“We’re also improving the images on our website,” he said. “The majority of our customers live outside Arkansas, so better photography means higher conversion for our e-commerce company.”

James+James employs approximately 20 full-time employees, but has plans to grow that number this year.

“We’re currently hiring on our sales team, an investment we are making so my sales lead can focus more on growth opportunities and less on day to day tasks,” Smith said. “I hope to be able to do the same with our production lead.”