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NFIB Small Business Optimism Hits Multi-Year High

Today's release of the monthly NFIB Small Business Optimism Index came in stronger than expected (96.6 vs. 95.8), hitting its highest level since September 2007.  In addition to hitting a multi-year high, May's level of optimism also exceeded the index's average level of 96.1 since 2000 for the first time since October 2007.

As we do each month, we also wanted to highlight what issues are causing small businesses the biggest 'problems' according to the NFIB.  The table to the right breaks down the range of responses among respondents to this month's survey.  As shown, no other issue is a bigger headache for small business owners than taxes (25%).  Second on the list of biggest problems is Government Requirements/Red Tape, which was cited by 20% of respondents.  Outside of those two problems, the only other issue that received more than 10% of the vote was Poor Sales.  On the labor front, the Fed will be watching the jobs market for any signs of upward pressure in wages, but based on this month's results that doesn't seem to be an issue.  While Quality of Labor saw an uptick to 10%, Cost of Labor declined to 4% from 5% last month.

The charts below show the historical trend of how frequently Taxes and Red Tape have been cited by small businesses as their number one problem.  For small businesses, Taxes have always been a thorny issue as it is natural for very few people to want to pay them.  Going back to 2007, the percentage of small businesses citing them as their number one problem has bounced around in a range between 16% and 25%.

While Taxes have always been a 'problem' for small businesses, Red Tape has seen an upsurge over the last few years.  From 2007 through 2008, the percentage of small businesses that cited it as their number one problem ranged from as low as 8% to as high as 12%.  Since the beginning of 2009, though, the percentage of small businesses citing it as their number one problem has steadily increased to as high as 24% last September to 20% today.

On a combined basis, the problems of Taxes and Red Tape currently sits at 45%, which is just 2 percentage points from its high of 47% last May.  In fact, nearly four times as many small business owners cited Taxes or Red Tape as their number one problem than they did Poor Sales.  We may sound like a broken record, but with Poor Sales continuing to be less and less of a worry for small businesses, think about how good the business environment could be if Taxes/Red Tape weren't such a big concern either. 

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