A score reported to be in the top 10% in the 46-year history of the NFIB Small Business Optimism Index was reached recently as a 1.5-point gain pushed the monthly tally to 104.3.

The two largest increases of the 10 individual components that make up the score were the percent of firms expecting higher real sales (+7) and the percent expecting improving earnings (+5). Overall, six of the components grew in January, while two fell and two were unchanged.

 
The Uncertainty Index rose one point after adding eight points in the last survey, putting it at a fairly high level.

The Wells Fargo Economics group credits some of the confidence to the rising stock market and optimism surrounding the signing of the Phase I China trade deal. However, only 28% of firms surveyed were planning capital outlays, which is unchanged from the previous month. Small firm capex plans have contracted for three straight quarters for the first time since the recession.

"Despite their optimistic view of the economy, business owners face a litany of concerns that have likely made them reticent to commit to major capital projects," a statement from the group read. "For starters, technology is rapidly breaking down barriers to entry in many industries, which has increased competition for sales and eroded pricing power. Political uncertainty surrounding the 2020 elections and concerns about the size of the federal budget are also weighing on investment decisions."

Hiring was robust in January, with the average addition of workers coming in at 0.49 per firm, the largest increase since March 2019. And 19% of small businesses plan to add staff in the future. Thirty percent have openings for skilled workers, but 49% report they are unable to find "qualified" labor for those slots.

Thirty-six percent of owners reported raising wages, as would be expected when the unemployment rate is near a 50-year low, and 24% plan to increase them in the near future.

"Looking forward, the coronavirus could weigh on optimism," the statement summed up. "The January survey was likely conducted too soon to capture any impact, which would show up in supply chain disruptions. While small businesses are less exposed to global growth and international trade than multinational corporations, even the smallest firms today source inventory and inputs from China, either directly or indirectly. Small firms are also exposed to financial conditions, which have recently eased and may offset some of these concerns."