Author: David Templeton, Principal and Portfolio Manager
The National Federation of Independent Business (NFIB) reported Tuesday June's Small Business Optimism Index reading equaled 102.5. The June index result is up 2.9 points from May's reading, but remains below the all time high of 108.8 reached in August 2018. The Optimism index report noted seven of the ten index components improved in June versus May's report.
Despite more than 9.4 million individuals unemployed, firms continue expressing challenges hiring employees, a common theme among those firms that responded to the recent NFIB survey. The below chart shows:
- A record 28% of firms plan to increase jobs while at the same time 46% note they have one or more hard to fill positions. This is occurring at the same time a record 39% of firms report raising compensation and 26% plan to raise compensation in the next three months.
- a near record 26% of firms highlighted that the quality of labor was one of their their single most important business problem while a near record 56% said there were few or no qualified applicants.
With employers facing difficulty finding employees, as noted above they are raising compensation. In an effort to offset some of this higher labor cost, a record 47% of firms indicated they are raising prices.
Much discussion has occurred of late regarding inflation (reported above expectations Tuesday) with some believing current inflation is a transitory issue. We do not disagree with that view; however, with firms broadly raising compensation this can have the result of creating a wage push inflation scenario leading to a higher level of prices running through the economy as consumers have more money to spend. From a positive standpoint productivity is beginning to see some improvement which can lessen a company's need to raise prices if more product is being produced for every hour worked. Hopefully, more on that in a later post. At the end of the day though, companies are having a difficult time finding employees to fill open positions.
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