The NFIB Small Business Optimism Index rose to 99.8 in April, an increase of 1.6 points from March. The Optimism Index has increased 4.8 points over the past three months since January but a record 44% of owners reported job openings they could not be filled.

“Small business owners are seeing a growth in sales but are stunted by not having enough workers,” said NFIB Chief Economist Bill Dunkelberg. “Finding qualified employees remains the biggest challenge for small businesses and is slowing economic growth. Owners are raising compensation, offering bonuses and benefits to attract the right employees.”

Other key findings include:
- Eight of the 10 Index components improved and two declined.
- The NFIB Uncertainty Index decreased one point to 80.
- Earnings trends over the past three months improved eight points to a net negative 7%.
- Owners have plans to invest in their businesses as the percentage of those planning to make capital expenditures in the next three to six months increased seven points to 27%.
- The percent of owners expecting better business conditions over the next six months fell seven points to a net negative 15%, surprisingly glum.
- As reported in NFIB’s monthly jobs report, 42% of owners reported job openings that could not be filled, a record high reading. Owners continue to have difficulty finding qualified workers to fill jobs as they compete with increased unemployment benefits and the pandemic keeping some workers out of the labor force.

Forty-seven percent reported capital outlays in the last six months, down two points from March but 10 points above last year’s low. Of those making expenditures, 42% reported spending on new equipment, 25% acquired new vehicles, and 15% improved or expanded facilities. Six percent acquired new buildings or land for expansion and 12% spent money for new fixtures and furniture. Twenty-seven percent plan capital outlays in the next few months. Hopefully supportive of improved productivity.

A net 3% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, up nine points from March. The net percent of owners expecting higher real sales volumes improved one point to a net 1%.

The net percent of owners reporting inventory increases rose three points to a net 3%. A net 7% of owners view current inventory stocks as “too low” in April, up four points. A net 5% of owners plan inventory investment in the coming months, up one point from March.

The net percent of owners raising average selling prices increased 10 points to a net 36% (seasonally adjusted), the highest reading since April 1981 when it was 43%. The highest was 67% in October 1974 when inflation reached double digit rates. Price hikes were the most frequent in wholesale (62% higher, 3% lower) and retail (46% higher, 6% lower). Seasonally adjusted, a net 36% plan price hikes, the highest reading since July 2008.

A net 31% (seasonally adjusted) reported raising compensation. A net 20% plan to raise compensation in the next three months. Increased compensation is being passed on to customers through higher prices.

Eight percent cited labor costs as their top business problem and 24% said that labor quality was their top business problem, unchanged from March and the top overall concern.

The frequency of positive profit trends improved eight points to a net negative 7% reporting quarter on quarter profit improvement. Among owners reporting lower profits, 39% blamed weaker sales, 16% cited the usual seasonal change, 14% cited a higher cost of materials, 7% cited lower prices, 6% cited labor costs, and 4% cited higher taxes or regulatory costs. For those reporting higher profits, 62% credited sales volumes, 15% cited usual seasonal change, and 10% cited higher prices.

Two percent of owners reported that all of their borrowing needs were not satisfied, 26% reported all credit needs met, and 59% said they were not interested in a loan. A net 3% reported their last loan was harder to get than in previous attempts. One percent of owners reported that financing was their top business problem.

LABOR MARKETS
Strong job growth continued for small businesses in April. Firms increased employment by 0.31 workers per firm on average over the past few months. The average has been above 0.30 since December 2020, historically an exceptional performance. Forty-four percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, up 2 points from March. Unfilled job openings continue to mount as April is the third consecutive month setting a record high reading. April’s reading is 22 points higher than the 48-year historical average of 22 percent. Thirty-seven percent have openings for skilled workers (up 3 points) and 20 percent have openings for unskilled labor (up 1 point). Overall, 59 percent reported hiring or trying to hire in April, up 3 points from March. Owners have plans to fill open positions, with a seasonally adjusted net 21 percent planning to create new jobs in the next three months, down 1 point from March. Fifty-four percent (92 percent of those hiring or trying to hire) of owners reported few or no “qualified” applicants for the positions they were trying to fill in April (up 3 points). Where there are open positions, labor quality remains a significant problem. Thirty-one percent of owners reported few qualified applicants for their open positions (up 3 points) and 23 percent reported none (unchanged).

CAPITAL SPENDING
Fifty-seven percent reported capital outlays in the last six months, down 2 points from March but 10 points above last year’s low. Of those making expenditures, 42 percent reported spending on new equipment (up 1 point), 25 percent acquired vehicles (down 1 point), and 15 percent improved or expanded facilities (up 1 point). Six percent acquired new buildings or land for expansion (unchanged) and 12 percent spent money for new fixtures and furniture (up 1 point). Twenty-seven percent plan capital outlays in the next few months, up 7 points from March.

COMPENSATION AND EARNINGS
Seasonally adjusted, a net 31 percent reported raising compensation (up 3 points), the highest level in the past 12 months. A net 20 percent plan to raise compensation in the next three months, up 3 points. More will be compelled by market forces to raise compensation, to keep current workers and to hopefully attract additional workers needed. The frequency of reports of positive profit trends improved 8 points to a net negative 7 percent reporting quarter on quarter profit improvement. This indicator of profitability is running at historically strong levels. Among owners reporting lower profits, 39 percent blamed weaker sales, 16 percent cited the usual seasonal change, 14 percent cited a higher cost of materials, 7 percent cited lower prices, 6 percent cited labor costs, and 4 percent cited higher taxes or regulatory costs. For owners reporting higher profits, 62 percent credited sales volumes, 15 percent cited usual seasonal change, and 10 percent cited higher prices.

CREDIT MARKETS
Two percent of owners reported that all their borrowing needs were not satisfied (unchanged). Twenty-six percent reported all credit needs met (down 1 point) and 59 percent said they were not interested in a loan (unchanged). A net 3 percent reported their last loan was harder to get than in previous attempts (up 2 points). One percent reported that financing was their top business problem (unchanged). The net percent of owners reporting paying a higher rate on their most recent loan was 0 percent, unchanged from March. The average rate paid on short maturity loans was 5.1 percent, unchanged from March. Loan rates continue to be consistently low. Twenty-four percent of all owners reported borrowing on a regular basis (up 1 point).

SALES AND INVENTORIES
A net 3 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, up 9 points from March. The net percent of owners expecting higher real sales volumes improved 1 point to a net 1 percent. The net percent of owners reporting inventory increases rose 3 points to a net 3 percent. Building inventory in the current environment is not easy as consumers are buying more while at the same time, so many supply chains are disrupted. A net 7 percent of owners view current inventory stocks as “too low” in April, up 4 points from March and at historically high levels. Keeping up with revitalized consumer spending and economic activity is proving difficult. A net 5 percent of owners plan inventory investment in the coming months, up 1 point from March, supply chains willing.

INFLATION
The net percent of owners raising average selling prices increased 10 points to a net 36 percent, seasonally adjusted. This is the highest reading since the days of inflation fighting under Federal Reserve president Volcker, 43 percent in April 1981 (highest was 67 percent in October, 1974). Unadjusted, 6 percent (down 2 points) reported lower average selling prices and 45 percent (up 9 points) reported higher average prices. Planned price hikes were the highest since July 2008. Price hikes were most frequent in wholesale (62 percent higher, 3 percent lower) and retail (46 percent higher, 6 percent lower). Seasonally adjusted, a net 36 percent plan price hikes (up 2 points).

COMMENTARY
The economy is definitely on a roller coaster of economic activity. GDP falling 30% last year in the second quarter, rising 33% in the third, and rebounding at near a 6% growth rate in the first quarter this year after a solid 4% in the fourth quarter of 2020. Twenty million jobs lost, now 8 million below the 2020 peak with 12 million recovered. The decline was caused by a government shutdown of the economy, mostly the small business economy, Main Street. The surge in growth is due to government policies, trillions of dollars sent to consumers and to small business owners to maintain their employment. A lot spent, but lots saved, trillions of dollars now in the bank. The savings rate is at historic high levels creating a huge potential increase in spending if consumers are motivated to shop.

Owners are raising selling prices in frequencies not seen since the late 1970s and early 1980s, a period of our highest inflation rates in modern history. Inflation was running at double-digit rates and interest rates reflected the expected inflation. The 10 Year Treasury bond carried a 15% coupon. Today, it is at 1.5% and inflation is very low. This can change very quickly. We don’t have inflation until it shows up on Main Street, but it is beginning to do so.

Job creation has been steady for the past six months for small firms, not showing the volatility of the overall jobs report. With consumer spending solid, hiring will continue to be solid. Total employment is still 8 million below its February 2020 level, most of those workers will be able to find a job, even with the headwinds produced by government policies. So, at least for the next few months, growth in the economy and jobs will remain strong.