NFIB Small Business Jobs Report: Small business hiring activity jumps in May
Hiring plans and job openings accelerate, but more small firms say it’s hard to find qualified workers
Overall job creation among small businesses edged higher in May, powered mainly by stronger hiring plans and job openings, according to the monthly National Federation of Independent Business (NFIB) Jobs Report, released today.
“Small business owners are starting to convert their optimism into action,” said NFIB President and CEO Juanita Duggan. “It’s a sign of a healthier economy.”
Small business owners reported a seasonally adjusted average employment change of 0.34 workers per firm. Thirty-four percent of owners reported job openings, a one-point increase over the April report and the highest level since 2001. Firms reporting plans to hire increased two points to a net 18%, which is the strongest reading since 2006.
“Firms are adding workers, creating new positions, and increasing compensation to attract better applicants and keep their best performers,” said NFIB Chief Economist Bill Dunkelberg. “If there is a dark cloud in the data, it is that there aren’t enough qualified workers to fill the available jobs. That puts a strain on small employers.”
When it came to finding qualified workers, 51% of small firms said they came across “few” or “none.” According to the data, 12% of small firms relied on temporary workers in May, an increase of two points from April and another sign of a tightening labor market.
“The really good news is that small firms want to hire, and they are trying hard to create more jobs. The bad news is that they’re having a very hard time finding qualified workers,” said Dunkelberg. “That’s forcing them to increase compensation to stay competitive and hire temporary workers, but they are still having a difficult time increasing prices to absorb the additional costs.”
LABOR MARKETS
Small business owners hit the hiring pavement with a surge, reporting an adjusted average employment change per firm of 0.34 workers per firm over the past few months. Few readings in the past 43 years of the survey have been higher. Fifteen percent (up 1 point) reported increasing employment an average of 3.0 workers per firm and 9% (down 1 point) reported reducing employment an average of 2.3 workers per firm (seasonally adjusted). Fifty-nine percent reported hiring or trying to hire (up 4 points), but 51% reported few or no qualified applicants for the positions they were trying to fill. Nineteen percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem (up 3 points), far more than were concerned with weak sales. Thirty-four percent of all owners reported job openings they could not fill in the current period, up 1 point, and the highest reading since November 2000, the peak of the last expansion. Twelve percent reported using temporary workers, up 2 points. A seasonally adjusted net 18% plan to create new jobs, up 2 points and the best since November 2006.
INVENTORIES
The net percent of owners reporting net inventory increases fell 1 point to a net -1% (seasonally adjusted). The net percent of owners planning to add to inventory fell 2 points to a net 1%from the highest reading reached in this recovery. Inventory satisfaction deteriorated 3 points to a net -5% showing more owners with excess stocks. However, this dip should be eased by expected sales gains going forward, useful for meeting expected demand growth.
SALES
The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months compared to the prior three months was unchanged at 5%, the best reading since May 2015, the last time it registered a positive reading prior to 2017. Until 2017, this measure had been positive in only six months since 2007 and as low as negative 35%. Seasonally adjusted, the net percent of owners expecting higher real sales volumes gained 2 points to a net 22% of owners.
CAPITAL SPENDING
Sixty-two percent reported capital outlays, up 3 points, bouncing back from the 5-point decline in April. Of those making expenditures, 46% reported spending on new equipment (up 4 points), 26% acquired vehicles (unchanged), and 15% improved or expanded facilities (up 1 point). Six percent acquired new buildings or land for expansion (unchanged) and 14% spent money for new fixtures and furniture (up 3 points). The percent of owners planning capital outlays in the next 3 to 6 months increased 1 point to 28%, high for the recovery but well below historical levels for periods of growth.
INFLATION
The net percent of owners raising average selling prices was a net 7% (unchanged), continuing a modest but steady increase in the percent of owners raising average selling prices. Nine percent of owners reported reducing their average selling prices in the past three months (down 1 point), and 19% reported price increases (down 1 point). The frequency of reported price hikes has ticked up since November, but not enough to produce a lot of inflation. Seasonally adjusted, a net 21% plan price hikes (up 3 points).
COMPENSATION AND EARNINGS
Reports of increased compensation fell 2 points to a net 26%, one of the best readings since February 2007 but below the recovery record level reached in January. Owners complain at recovery record rates of labor quality issues, with 87% of those hiring or trying to hire reporting few or no qualified applicants for their open positions. A near-recovery record 16% selected “finding qualified labor” as their top business problem, almost as many as cite the cost of regulatory compliance as their top challenge. Actual earnings was unchanged with a net -9% reporting quarter on quarter profit improvements, historically an excellent reading and the best in this expansion.
CREDIT MARKETS
Only 3% of owners reported that all their borrowing needs were not satisfied, unchanged and historically very low. Thirty-one percent reported all credit needs met (down 1 point), and 51% explicitly said they did not want a loan. Only 1% reported that financing was their top business problem compared to 22% citing taxes, 19% citing the availability of qualified labor, and 13% regulations and red tape. Twenty-eight percent of all owners reported borrowing on a regular basis (down 3 points). The average rate paid on short maturity loans was up 50 basis points to 5.9%.
COMMENTARY
The small business sector remains poised to do its part to contribute to overall economic growth. The heavy burden of taxes, health insurance and regulations must be eliminated to support their efforts. The New York Federal Reserve estimates second quarter growth at 2.2% while the Atlanta Federal Reserve anticipates growth at 3.4%. To appreciate the magnitude of that gap, 1.2 percentage points is equal to or greater than the growth of the entire economy in many quarters over the past eight years. Removing the penalties embedded in our tax code and regulatory structure which waste valuable time and hours will do much to speed up the growth rate, making the U.S. a growth leader.
