Small Business Sentiment:
"Optimism Up Slightly"
The latest issue of the NFIB Small Business Economic Trends is out today (available here). The December update for November came in at 92.5, up 0.9 points from the previous month's 91.6. Today's overall number is at the 16.4 percentile in this series -- the lowest quintile in its history. Since its initial recovery following its Great Recession trough, this index has been stuck in an extremely volatile range for the past three years. Since January of 2011, it has repeatedly bumped a ceiling around the 94 level and then retreated.
Here is an excerpt from the opening summary of the report:
Owner sentiment increased by 0.9 points to 92.5, a dismal reading as has been the case since the recovery started. Over half of the improvement was accounted for by the labor market components which is certainly good news, lifting them closer to normal levels. Expected business conditions though deteriorated further - lots of dismal views of the economy coming next year. The Index has stayed in a "trading range" between 86.4 and 95.4 since the recovery started, poor in comparison to an average reading of 100 from 1973 through 2007.
The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings of the past four years. The NBER declared June 2009 as the official end of the last recession.
The average monthly change in this indicator is 1.29 points. To smooth out the noise of volatility, here is a 3-month moving average of the Optimism Index along with the monthly values, shown as dots.
Inventories And Sales
The findings on small business inventories and sales continue to underscore the general pessimism of the survey. The excerpts below are from the latest monthly report (PDF format).
|The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past 3 months compared to the prior 3 months was unchanged at a negative 8 percent. Fifteen percent still cite weak sales as their top business problem, but is the lowest reading since June 2008. The net percent of owners expecting higher real sales volumes rose 1 point to 3 percent of all owners after falling 6 points in October (seasonally adjusted), a weak showing.|
Has the Fed's zero interest rate policy and quantitative easing had a positive impact on Small Businesses?
|Four percent of the owners reported that all their credit needs were not met, down 2 points. Thirty-two percent reported all credit needs met, and 52 percent explicitly said they did not want a loan. Only 2 percent reported that financing was their top business problem. Twenty-nine percent of all owners reported borrowing on a regular basis, up 1 point but a near-record low. A net 6 percent reported loans "harder to get" compared to their last attempt (asked of regular borrowers only), unchanged from October.|
This month's "Commentary" section concludes with the following observations:
|The year is not ending on a high note in the small business sector of the economy. The "bifurcation" continues, the “Fortune 500” are performing well with the stock market hitting record high levels. But the small business sector is showing little growth beyond that driven by population growth. Since January 1 st , the S&P has added $3.8 trillion in value – but have output and profits really increased that much? Or is this the work of the Federal Reserve which has voted to leave rates unchanged in the last 39 meetings, and likely adding to this total in December. Maybe fiscal policy will get on course and give owners something to cheer about.|
Business Optimism and Consumer Confidence
The next chart is an overlay of the Business Optimism Index and the Conference Board Consumer Confidence Index. The consumer measure is the more volatile of the two, so I've plotted it on a separate axis to give a better comparison of the volatility from the common baseline of 100.
These two measures of mood have been highly correlated since the early days of the Great Recession.