Business owners said they plan to increase capital spending, but weren’t as optimistic about earnings growth.
Treasury yields may be near the lows of this year, but small business optimism is one economic measure that has retained its post-election highs.
This was true in August, a month filled with missteps from the Trump administration.
The National Federation of Independent Business‘s index of small business optimism rose 0.1 points in August to 105.3. Expectations were that it would decline to 104.8. It was in the mid-90s in October and November before surging to 105.8 in December. It slipped modestly from there in early spring and summer before bumping up in the last few months — even as Trump’s approval ratings have fallen.
The highlight of the report was a jump in companies’ plans to increase capital spending.
Peter Boockvar of The Lindsey Group writes:
Those that Plan to Hire fell 1 pt but after rising by 4 pts in July. Positively and which has been a missing piece of this recovery, those that plan to Increase Capital Spending was up by 4 pts to the most since 2006. Those that Expect a Better Economy was unchanged but those that Expect Higher Sales rose by 5 pts to the most since January. Those that said it’s a Good Time to Expand was up by 4 pts but this optimism is not being reflected in earnings expectations maybe because profit margins have peaked and have begun to roll over. Positive Earnings Trends fell 1 pt to the weakest since February. Current Compensation Plans rose 1 pt to match the best since in 7 months but disappointingly, future Compensation Plans fell by 3 pts to match the weakest since last September. There was also a 4 pt drop in Positions Not Able to Fill but that is after a 5 pt jump in July. In terms of inflation, Higher Selling Prices rose 1 pt and sits at the highest level in 3 years.
He notes further:
This data point is never market moving but we’ll be watching to see particularly if the capital spending plans actually translates into the actual figures in coming months. A halt in the ever growing size of the regulatory state I would argue has been the biggest benefit to small business. The NFIB mentions strong consumer demand but at least not yet is that reflected in any US data.