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Optimism Among U.S. Small Businesses Reaches Pre-Pandemic Levels in September

By Xavier Fontdegloria

Small-business owners confidence in the U.S. economy increased further in September and broadly reached its pre-pandemic levels, data from a survey compiled by the National Federation of Independent Business showed Tuesday.

The NFIB Small Business Optimism Index came in at 104.0 in September, a 3.8 points increase compared with August's 100.2 reading and above the historical 46-year average. Economists polled by The Wall Street Journal had expected a lower level of 101.3.

The NFIB is a monthly snapshot of small businesses in the U.S., which account for nearly half of private sector jobs. Economists look to the report for a read on domestic demand and to extrapolate hiring and wage trends in the broader economy.

The indicator, which plunged in April to a seven-year low as the coronavirus pandemic hit the economy, has regained almost all lost ground, recovering to February's pre-pandemic level of 104.5.

In September, nine of the 10 index components improved, while one - expect easier credit conditions - declined.

Earning trends over the past three months improved by a significant 13 points, although the component still remained in a net negative 12% of owners reporting quarter on quarter profit improvement.

Among owners reporting weaker profits, more than half blamed weak sales, while one out of 10 cited lower prices.

Owners expecting better business conditions over the next six months improved eight points to a net 32%. Real sales expectations in the next three months increased five points to a net 8%.

Job creation plans increased two points to a net 23% and job openings also grew by three points to 36%. "Twenty-two million jobs were lost in the March-April period, half have been recouped to date, but the pace of improvement appears to be slowing. Government regulations about re-opening will significantly impact the recovery rate for jobs as will consumer attitudes about the safety of mixing with crowds," the report said.

Capital expenditure plans increased two points to 28%, while the percentage of owners thinking it is a good time to expand rose one point to 13%.

The net percentage of owners reporting current inventories stocks as "too low" rose two points to 5%, and plans to increase inventories grew by five points to 11%, the highest reading since November 2004. "Inventories are very low and need to be rebuilt to support even modest growth in the economy," the report said.

Of owners surveyed, 21% selected the quality of labor as their top business problem, followed by taxes and government regulation, with a 16% and 13%, respectively.

The NFIB Uncertainty Index increased two points to 92, up from 75 in April. Among reasons for uncertainty are Covid-19 or the coming presidential elections.

"The political climate is stressful and contributing to uncertainty. The presidential election is weeks away and voters have a choice of very different management teams. All that, in addition to a virus that has killed 200,0000 people to date with more to come ... But these issues will be resolved and the small business sector will continue to drive the economy forward," the report said.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

(END) Dow Jones Newswires

October 13, 2020 06:18 ET (10:18 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.

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