November 2021 Report: Small Business Optimism Up Slightly in November
The NFIB Small Business Optimism Index increased slightly in November by 0.2 points to 98.4. Four of the 10 Index components improved, four declined, and two were unchanged. The NFIB Uncertainty Index decreased four points to 63.
Key findings include:
- Owners expecting better business conditions over the next six months decreased one point to a net negative 38%, tied for the 48-year record low reading. This indicator has declined 18 points over the past four months to its lowest reading since November 2012.
- The net percent of owners raising selling prices increased six points to a net 59% (seasonally adjusted), the highest reading since October 1979.
- Seasonally adjusted, a net 54% of owners plan price hikes, up three points from October and a 48-year record high reading.
- Forty-eight percent of owners reported job openings that could not be filled, a decrease of one point from October.
As reported in NFIB’s monthly jobs report, small business owners continue to struggle to find workers to fill their open positions. Forty-eight percent (seasonally adjusted) of all small business owners reported job openings they could not fill in the current period, down one point from October. Overall, 60% of owners reported hiring or trying to hire in November.
Fifty-five percent of owners reported capital outlays in the last six months, down one point from October. Of those owners making expenditures, 39% reported spending on new equipment, 22% acquired vehicles, and 14% improved or expanded facilities. Six percent of owners acquired new buildings or land for expansion and 13% spent money for new fixtures and furniture. Twenty-seven percent of owners plan capital outlays in the next few months, down four points from October.
A net negative 2% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, up two points from October. The net percent of owners expecting higher real sales volumes increased two points to a net 2%.
The net percent of owners reporting inventory increases gained two points to a net 3%. Thirty-five percent of owners report that supply chain disruptions have had a significant impact on their business, 31% report a moderate impact, and 22% report a mild impact. Only 9% of owners report no impact from recent supply chain disruptions. A net 15% of owners viewed current inventory stocks as “too low” in November, up six points from October and a record-high level. A net 10% of owners plan inventory investments in the coming months, up two points from October and historically a very elevated reading.
The net percent of owners raising selling prices increased six points to a net 59% (seasonally adjusted), the highest reading since October 1979. Three percent (unadjusted) reported lower average selling prices and 59% reported higher average prices. Price hikes were the most frequent in wholesale (88% higher, 0% lower), construction (75% higher, 7% lower), and manufacturing (66% higher, 1% lower). Seasonally adjusted, a net 54% of owners plan price hikes, up three points from October and a 48-year record high reading.
A net 44% (seasonally adjusted) of owners reported raising compensation, unchanged from October and a 48-year record high reading. A net 32% plan to raise compensation in the next three months, also unchanged from October and a record high reading. Ten percent of owners cited labor costs as their top business problem and 29% said that labor quality was their top business problem.
The frequency of reports of positive profit trends remained at a net negative 17%. Among those owners reporting lower profits, 32% blamed the rise in the cost of materials, 25% blamed weaker sales, 9% cited labor costs, 9% cited the usual seasonal change, 16% cited lower prices, and 2% cited higher taxes or regulatory costs. For owners who report higher profits, 61% credited sales volumes, 11% cited usual seasonal change, and 17% cited higher prices.
Two percent of owners reported that all their borrowing needs were not satisfied, 23% reported all credit needs were met, and 65% said they were not interested in a loan. A net 2% reported their last loan was harder to get than in previous attempts. Zero percent of owners reported that financing was their top business problem. A net 2% of owners reported paying a higher rate on their most recent loan.
The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since the 4th quarter of 1973 and monthly surveys since 1986. Survey respondents are randomly drawn from NFIB’s membership. The report is released on the second Tuesday of each month. The survey was conducted in November 2021.
LABOR MARKETS
Forty-eight percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, down 1 point from October. Forty-one percent have openings for skilled workers (down 1 point) and 22 percent have openings for unskilled labor (down 2 points). Fifty-six percent of the job openings in construction are for skilled workers, down 3 points. Sixty-four percent of construction firms reported few or no qualified applicants (down 1 point). Overall, 60 percent reported hiring or trying to hire in November, down 2 points from October but very strong. Owners’ plans to fill open positions remain at record high levels, with a seasonally adjusted net 25 percent planning to create new jobs in the next three months, down 1 point from October but still the third highest reading in the 48-year history of the survey and well above the historical average reading of a net 11 percent. Fifty-six percent (93 percent of those hiring or trying to hire) of owners reported few or no qualified applicants for the positions they were trying to fill (down 2 points). Thirty percent of owners reported few qualified applicants for their open positions (down 3 points) and 26 percent reported none (up 1 point).
CAPITAL SPENDING
Fifty-five percent reported capital outlays in the last six months, down 1 point from October. A recovery in investment will be needed to spark an improvement in productivity, but this is unlikely to occur while owners remain pessimistic about future business conditions. The frequency of spending recently peaked at 63 percent in January of 2020 but quickly fell 16 percentage points to 47 percent in August of 2020, a massive reduction. Of those making expenditures, 39 percent reported spending on new equipment (down 1 point), 22 percent acquired vehicles (down 2 points), and 14 percent improved or expanded facilities (unchanged). Six percent acquired new buildings or land for expansion (down 1 point) and 13 percent spent money for new fixtures and furniture (up 1 point). Twenty-seven percent plan capital outlays in the next few months, down 4 points from October. Capital spending is still anemic relative to the recent growth in the economy as is employment growth.
INFLATION
The net percent of owners raising average selling prices increased 6 points to a net 59 percent seasonally adjusted. Unadjusted, 3 percent (down 3 points) reported lower average selling prices and 59 percent (up 2 points) reported higher average prices. Price hikes were most frequent in wholesale (88 percent higher, 0 percent lower), construction (75 percent higher, 7 percent lower), and manufacturing (66 percent higher, 1 percent lower). Seasonally adjusted, a net 54 percent plan price hikes (up 3 points).
CREDIT MARKETS
Seasonally adjusted, a net 44 percent reported raising compensation, unchanged from October and a 48-year record high reading. A net 32 percent plan to raise compensation in the next three months, unchanged from October’s record high reading. Ten percent cited labor costs as their top business problem (unchanged) and 29 percent said that labor quality was their top business problem (up 5 points). The frequency of reports of positive profit trends remained at a net negative 17 percent. Among owners reporting lower profits, 32 percent blamed the rise in the cost of materials, 25 percent blamed weaker sales, 9 percent cited labor costs, 9 percent cited the usual seasonal change, 16 percent cited lower prices, and 2 percent cited higher taxes or regulatory costs. For owners reporting higher profits, 61 percent credited sales volumes, 11 percent cited usual seasonal change, and 17 percent cited higher prices.
SALES AND INVENTORIES
A net negative 2 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, up 2 points from October. The net percent of owners expecting higher real sales volumes increased by 2 points to a net 2 percent. The net percent of owners reporting inventory increases gained 2 points to a net 3 percent. Thirty-five percent of owners report that supply chain disruptions have had a significant impact on their business (down 4 points). Another 31 percent report a moderate impact and 22 percent report a mild impact. Only 9 percent report no impact from recent supply chain disruptions. A net 15 percent of owners viewed current inventory stocks as “too low” in November, up 6 points from October and at a record high level. A net 10 percent of owners plan inventory investment in the coming months, up 2 points from October and historically a very elevated reading.
COMMENTARY
The Federal Reserve Bank of New York produces a weekly economic Index (WEI) that gets us closer to “real time” economic activity than other popular measures. https://www.newyorkfed.org/research/policy/weekly-economic-index#/ It recently peaked in April 2021 and has been on a declining path since then. However, moving into December the Index has meaningfully improved. A few weeks does not a trend make but the change is welcome. The economy still has plenty of fuel to keep growing well into 2022. Economic policies in 2022, however, will become even more uncertain as it is an election year and the issues are diverse and high energy politically; tax increases, regulations, spending, climate, social goals, and government appointments, to name a few. Specifically of concern for small business owners is the current Build Back Better legislation which includes a significant tax increase for many. With a 50/50 Congress, anything can happen! And then there is Covid, which will continue to put its thumb on the scale of economic outcomes.
Bill Dunkelberg is Chief Economist at the National Federation of Independent Business (NFIB)
