The Small Business Optimism Index jumped two points to 106.9 in January and set a record with the number of small business owners saying “Now Is a Good Time to Expand,” according to NFIB’s Small Business Economic Trends Survey, released on Tuesday.

“Main Street is roaring,” said NFIB President and CEO Juanita Duggan. “Small business owners are not only reporting better profits, but they’re also ready to grow and expand. The record level of enthusiasm for expansion follows a year of record-breaking optimism among small businesses.”

Now Is a Good Time to Expand registered at 32 percent, the highest level in the history of the NFIB survey, which began in 1973. Actual Earnings climbed up 11 points from December, the highest level reported since 1988. Plans to make Capital Outlays jumped up two points, and Plans to Increase Inventories gained four points.

The Good News

The historically high index readings over the last year tell us small business owners have never been more positive about the economy. This is in large response to the new management in Washington tackling the biggest concerns of small business owners – high taxes and regulations.

As small business owners struggle to find qualified workers for open positions, reports of higher worker compensation rose four percentage points to a net 31 percent, the highest reading since 2000 and among the highest in the 45 years of NFIB’s survey.

Plans to raise compensation also rose one point to a net 24 percent, the highest reading since 1989. Finding qualified workers now exceeds taxes and regulations as the top concern for small businesses.

The new tax law, the Tax Cuts and Jobs Act, produced the most recent boost to small business optimism. And federal government related cost pressures continue to abate, offering a more supportive business climate for small firms. Consumer spending remains supportive, and business spending and housing remain strong.

Fed Focus

On the Federal Reserve front, the minutes of their last meeting revealed a discussion of inflation that mirrored much of the recent public discussion by Former Chair Yellen, who acknowledged the difficulties the committee has in understanding current inflation dynamics and why inflation continues to remain below target, despite very accommodative policies.

It is worrisome that our central bank wants to create inflation and assumes that once it has “enough”, it can keep inflation from going higher. The Federal Reserve’s forecast is that inflation will continue to rise and then stop at their target of 2 percent, they offer no explanation of why or how it will stop. And, there is no rigorous explanation of why 2 percent is the “right’ level for the economy.

If it is not, pursing policies that try to increase inflation could become even more damaging to the economy, hurting the small business sector. In the meantime, the Federal Reserve will continue to raise rates.

Global Rankings

The U.S. ranked second in the World Economic Forum (Davos)’s assessment of global competitiveness. Strong points included inflation, venture capital, business sophistication, innovation, financial market development, labor market efficiency, and higher education and training.

Not so good U.S. ranking included 61st (out of 137 economies studied) on business costs of crime and violence, 57th on organized crime, 39th for internet use penetration and 95th on tax rate as a percent of profits (pre tax law).

The extensive size and performance of our small business sector plays a key role in supporting these rankings and now government policies are more focused on strengthening the competitiveness and performance of this sector by reducing regulatory and tax restrictions that waste time and capital. The new tax law is one more significant step towards establishing a pro-growth environment supporting the small business sector.

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