In November, 36 percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, up 1 point from October. Thirty percent have openings for skilled workers (down 1 point) and 13 percent have openings for unskilled labor (down 1 point). The difficulty in filling open positions is particularly acute in transportation, construction, and professional services industries. Job openings in construction were up 5 points from last month and over half of the firms (54 percent) have a job opening they cannot fill. Openings were the lowest in the agriculture and finance industries. A seasonally adjusted net 18 percent of owners plan to create new jobs in the next three months, up 3 points from October. The last time hiring plans were this high was November 2023. Overall, 55 percent reported hiring or trying to hire in November, up 2 points from October’s lowest reading since January 2021. Forty-eight percent (87 percent of those hiring or trying to hire) of owners reported few or no qualified applicants for the positions they were trying to fill (up 2 points). Twenty-nine percent of owners reported few qualified applicants for their open positions (up 4 points) and 19 percent reported none (down 2 points). Reports of labor quality as the single most important problem for business fell 1 point from October to 19 percent. Labor costs reported as the single most important problem for business owners rose 3 points to 11 percent, only 2 points below the highest reading of 13 percent reached in December 2021.

Fifty-four percent reported capital outlays in the last six months, unchanged from October. Unions are demanding protection from innovation including AI, but only 6 percent of the private sector workforce is unionized (33 percent in the public sector) so progress on productivity enhancement depends on the non-union private sector employers and their investments in productivity enhancement. Investments increase output per hour of work, the key to improved compensation. Of those making expenditures, 39 percent reported spending on new equipment (up 4 points), 22 percent acquired vehicles (down 1 point), and 14 percent improved or expanded facilities (unchanged). Twelve percent spent money on new fixtures and furniture (up 1 point) and 7 percent acquired new buildings or land for expansion (up 2 points). Twenty-eight percent (seasonally adjusted) plan capital outlays in the next six months, up 6 points from October. This is the highest reading since January 2022.

The net percent of owners raising average selling prices rose 3 points from October to a net 24 percent seasonally adjusted. Twenty percent of owners reported that inflation was their single most important problem in operating their business (higher input and labor costs), down 3 points from October and surpassing labor quality as the top issue by 1 point. Unadjusted, 11 percent (down 2 points) reported lower average selling prices and 32 percent (unchanged) reported higher average prices. Price hikes were most frequent in the wholesale (50 percent higher, 4 percent lower), finance (46 percent higher, 4 percent lower), retail (43 percent higher, 3 percent lower), and services (35 percent higher, 10 percent lower) sectors. Seasonally adjusted, a net 28 percent plan price hikes in November (up 2 points).

Four percent of owners reported that all their borrowing needs were not satisfied, up 2 points from October. Twenty-six percent reported all credit needs met (up 3 points) and 62 percent said they were not interested in a loan (down 2 points). A net 7 percent reported their last loan was harder to get than in previous attempts (up 1 point). Five percent reported that financing was their top business problem in November (up 2 points). A net 5 percent of owners reported paying a higher rate on their most recent loan, unchanged from October’s lowest reading since January 2022. The average rate paid on short maturity loans was 8.8 percent, down 0.9 of a point from October. Twenty-eight percent of all owners reported borrowing on a regular basis, up 3 points from October.

Seasonally adjusted, a net 32 percent reported raising compensation, up 1 point from October and a historically strong reading. A seasonally adjusted net 28 percent plan to raise compensation in the next three months, up 5 points from October and the highest reading of this year. The frequency of reports of positive profit trends was a net negative 26 percent (seasonally adjusted), up 7 points from October and the highest (least negative) reading of this year. Among owners reporting lower profits, 32 percent blamed weaker sales, 18 percent blamed the rise in the cost of materials, 13 percent cited labor costs, and 9 percent cited lower selling prices. All of these increased from the previous month. For owners reporting higher profits, 53 percent credited sales volumes, 21 percent cited usual seasonal change, and 13 percent cited higher selling prices.

A net negative 13 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, 7 points better than October’s worst reading since July 2020. The net percent of owners expecting higher real sales volumes rose 18 points to a net 14 percent (seasonally adjusted), the highest reading since February 2020. The net percent of owners reporting inventory gains rose 2 points to a net negative 7 percent (seasonally adjusted). Not seasonally adjusted, 10 percent reported increases in stocks (unchanged) and 16 percent reported reductions (down 2 points). A net negative 2 percent (seasonally adjusted) of owners viewed current inventory stocks as “too low” in November, unchanged from October. A net 1 percent (seasonally adjusted) of owners plan inventory investment in the coming months, up 3 points from October.

After a year of readings at 94 or lower (98 is the 50-year average), the Index of Small Business Optimism rose to 101.7 in November, clearly a response to the presidential election. The election results signal a major shift in economic policy, particularly for tax and regulation policies, that favor economic growth. Economic and employment growth have been dominated by government spending, financed with massive deficits, crowding out private spending with higher prices and interest rates. Average small firm loan costs rose from 4 percent to over 9 percent over the past four years. Government (federal, state, and local) employment (direct and indirect) surged, competing with private firms for employees, mainly those businesses that did not benefit from government spending. Trump’s first term as president produced inflation rates that averaged well under the Fed’s 2 percent target and very strong economic growth. Owners hope for a repeat performance.
 
Energy costs are in everything made. Trump pursued policies that positioned the U.S. as the top energy producer, driving oil prices down. This produced a significant downward pressure on energy cost and inflation. It appears that Trump’s second administration will pursue similar policies. Extending Trump’s signature tax law, the TCJA, also appears likely, a big plus for small businesses. A focus on government efficiency could produce major savings (but remember, one agency’s waste is another person’s income) and some deficit reduction. Cuts will be controversial. The current administration will do all it can to fund its favorite projects before the budget cutters get into office. The Fed will continue on its course to a policy rate of around 2 percent; there is still a lot of cutting left to go. The key to lower mortgage rates is less government borrowing and continued low inflation rates (and expectations).
 
Trump will inherit an economy still struggling to get inflation back to target, a larger debt, and much higher interest rates, to name a few. Not in bad shape, but it doesn’t feel good. His tax and deregulation policies will gain a lot of supporters to help address the problems.