American small businesses are super bullish on the U.S. economy, JP Morgan study says

Myles Udland
Markets Reporter

America’s small- and mid-sized business owners are super bullish on the U.S. economy.

According to JP Morgan’s annual business leaders outlook survey released Wednesday, 89% of mid-sized businesses and 63% of small businesses are optimistic about the U.S. economy.

Small business optimism is the same compared to last year while mid-size business optimism is up nine points from a year ago. The firm defines medium-sized businesses as those with $20-$500 million in annual revenue; small businesses are those with $100,000-$20 million in annual revenue.

JP Morgan’s report is yet another example of soaring optimism from U.S. small businesses, one of the strongest economic trends we’ve seen since President Donald Trump was elected in November 2016.

“This trending positivity is confirmation that something real is happening in the economy,” said Jim Glassman, senior economist at JPMorgan Chase. “Business optimism translates to business activity, which is why we’re seeing increased expectations across the board.”

Small businesses remain extremely optimistic about their economic prospects. The only thing that might hold them back is finding qualified workers, according to a new study from JP Morgan Chase. Getty Images.

And when it comes to what might hold the economy back, this survey showed that the top complaint among businesses owners is something economists, business leaders, and the press have been harping on at length in recent years — qualified workers.

Just over half — 54% — of mid-size businesses said a limited supply of talent in the employment pool would be a “top challenge” in 2018, up 10 points from last year and marking the fourth-straight year an increasing percentage of firms have listed this as a challenge.

Glassman told Yahoo Finance these numbers, “tell you [the U.S. economy] is in a good spot.”

“You learn so much about where we are [in the economic cycle] by listening to what people are complaining about,” Glassman said. “Complaints about not being able to find people, having to pay more to retain people, and working hard to find staff with the right skills is all music to my ears. It means we’re in the good years of an economic cycle.”

Finding and paying workers is a growing concern for small businesses as the pool of qualified candidates dwindles ten years into the post-crisis economic recovery. (Source: JP Morgan Chase)

The survey also shows that 76% of mid-sized businesses plan on boosting pay this year, up 5% from last year’s survey, with 64% of firms planning to increase their full-time personal, up 7% from a year ago.

JP Morgan’s numbers also jive with the most recent small business optimism report from the National Federation for Independent Business, which indicated that 89% of firms trying to hire reported few or no qualified applicants for the positions they were trying to fill. The NFIB’s survey also said 22% of small businesses cited quality of labor as its biggest concern, the first time since at least 2007 that this worry eclipsed both taxes and government regulations as their primary worry.

This tightening labor market has led many strategists and economists to posit that higher wages are likely ahead for workers as competition for their services heats up. In January, data from the Bureau of Labor Statistics showed average hourly earnings rose 2.9% over the prior year, the fastest pace since the financial crisis.

Glassman, however, sees wage growth as largely a function of worker productivity. And to Glassman, productivity increases are a likely outcome in an economic environment where a defining feature is a need for companies to get more out of their existing workforce amid a scarcity of quality replacement candidates.

“In my mind, wage growth is going to reflect underlying fundamentals,” Glassman said. “We expect compensation to grow about in-line with productivity. The way that worker pay will do better is if underlying productivity does better, and I think we’re going to find productivity does better in the years ahead.”

As for the stock market and its impact on the outlook for small- and mid-sized businesses, Glassman said it’s hard to tease out a specific way financial markets may alter the outlook economically, but when the stock market is doing well, there is clearly something happening in the real economy that will be captured at the business-specific level.

“The equity market monetizes all this stuff that might seem abstract,” Glassman said. “It’s all tied together.”

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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