Several different business surveys are showing that business leaders are more optimistic than at any time in decades. The optimism is coming with one main concern though and that is supply of qualified workers.
JP Morgan released its annual survey of business leaders earlier today and it showed small and mid-sized businesses are incredibly optimistic about the economy. The survey showed that 89 percent of mid-size businesses are optimistic and that is up from 80 percent last year. Small business leaders showed the same amount of optimism as last year at 63 percent.
The survey categorized businesses based on annual revenue with small businesses having revenue in the $100,000 to $20 million range and mid-size businesses have revenue in the $20-$500 million range.
The results of this survey align with the monthly readings from the NFIB Small Business Optimism Index. Over the past year this survey has been hitting historical highs with the January reading coming in at 106.9. The reading for November ’17 came in at 107.1 and that was the second highest reading ever.
Within this survey there are certain responses tracked and one of them is “Now is a Good Time to Expand”. In the January survey, 32 percent of business owners responded yes to this particular segment. That is the highest reading ever and this survey goes back to 1973.
In both of these surveys, one of the biggest concerns was the ability to find enough qualified workers to continue expanding. The NFIB survey showed that 31 percent of owners are struggling in this manner and that is the highest reading since 2000 and one of the highest readings from the past 45 years. In the JP Morgan survey, 54 percent of mid-size businesses said a limited supply of talent in the employment pool will be one of the top challenges in 2018 and that is up from 44 percent in last year’s survey. That was the second most listed challenge behind growing sales/revenue. The third most listed challenge was “managing labor costs” which was listed on 50 percent of surveys.
The JP Morgan survey showed that 76 percent of mid-sized businesses plan on boosting pay in the year ahead and that is up five percent from last year. The NFIB monthly survey showed that 24 percent plan to raise employee compensation and that is the highest reading since 1989.
Given how it was unexpected wage growth in the January employment report that spooked the market and led to the two-week correction that saw the S&P drop over two percent, this is a trend that we will want to keep an eye on. A little bit of inflation and wage growth is good for the economy. If wages start growing too fast due to the labor supply being too tight, it could cause inflation to rise at a faster rate than analysts expect and could lead the Fed to raise interest rates faster or higher than expected at this time.