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The National Federation of Independent Business (NFIB) monthly Index of Small Business Optimism rose 1.6 percent in July to 105.2, a strong performance led by significant gains in hiring activity.“Strong consumer demand is boosting small business optimism,” said NFIB President and CEO Juanita Duggan. “Small business owners are feeling better about the economy because their customers are feeling better about the economy. This is a good trend that we hope continues.”

Among the 10 components that make up the Index, seven improved, two declined, and one remained unchanged. The biggest gains were: job openings (+5); job creation plans (+4); and sales expectations (+5).

“Sixty percent of small business owners reported hiring or trying to hire in July,” said NFIB Chief Economist Bill Dunkelberg. “Within that group, 87 percent said they had a tough time finding qualified workers. The labor market is getting very tight, and the problem is most severe in the construction and manufacturing sectors.”

Business owners cite “lack of specific skills” as the main reason they can’t find qualified workers, according to new NFIB research included in the July report. Other common reasons include: work history; social skills; wage expectations; and attitude.

Nineteen percent of small business owners listed lack of qualified workers as their number-one problem, second only to taxes.

“The number of owners trying to fill positions and create new jobs is very high,” said Dunkelberg. “That’s good news for workers, because they can command higher wages and better benefits. The bad news is that small business employers are finding it very hard to hire and keep their workers.”

Expected better business conditions, which dipped last month, rose 4 points in July. Sales expectations also improved 5 points. While most of the components were strong in July, capital expenditures remained average. Capital expenditure plans dropped 2 points. Fifty-seven percent of owners made capital outlays, which was unchanged from the previous month.

“Small business owners are waiting to see what happens on tax reform before they make big capital improvements or acquisitions,” said Duggan.