NFIB: Small Business Survey: "No Signs of Strength in the Small Business Sector"

The latest issue of the NFIB Small Business Economic Trends is came out Tuesday morning. The headline number for August came in at 94.4, down 0.2 from the previous month's 94.6. The index is at the 24th percentile in this series. The index is at the 25th percentile in this series. Today's number came in below the forecast of 94.9.

Here is an excerpt from the opening summary of the news release.

The Index of Small Business Optimism declined two-tenths of a point in August to 94.4, with owners refusing to expand; expecting worse business conditions; and unable to fill open positions, according to the National Federation of Independent Business (NFIB).

"Once again, the NFIB survey showed no signs of strength in the small business sector," said NFIB Chief Economist Bill Dunkelberg. "Uncertainty seems to be the major enemy of economic progress and the political climate is a major contributor to the high levels of uncertainty that we’ve seen. The current economic environment is not a good one for strong or sustained growth."

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 following the Great Recession that ended in June 2009.

NFIB Optimism Index

Here is a closer look at the indicator since the turn of the century. The post-recession interim high of 100.4 occurred in December 2014.

NFIB Optimism Index Since 2000

The average monthly change in this indicator is 1.3 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.

NFIB Optimism Index Moving Average

Here are some excerpts from the report.

Labor Markets

Reported job creation remained weak in August with the seasonally adjusted average employment change per firm posting a decline of -0.02 workers per firm. Fifty-six percent reported hiring or trying to hire (up 3 points), but 48 percent reported few or no qualified applicants for the positions they were trying to fill. Fifteen percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem.


How effective has the Fed's monetary policy been in lifting inflation to it two percent target rate?

Inflationary pressures remain dormant on Main Street. Fourteen percent of owners reported reducing their average selling prices in the past three months (down 2 points), and 16 percent reported price increases (up 1 point). Seasonally adjusted, the net percent of owners raising selling prices rose 5 points from July to 3 percent. In spite of the Federal Reserve’s efforts, inflation on Main Street is M.I.A. Seasonally adjusted, a net 15 percent plan price hikes (up 1 point). Prospects for a resurgence of inflation are low, especially with gas prices on the decline again.

Credit Markets

Has the Fed's zero interest rate policy and quantitative easing had a positive impact on Small Businesses?

Four percent of owners reported that all their borrowing needs were not satisfied, 2 points above the record low reached in September 2015. Twenty-nine percent reported all credit needs met (down 1 point), and 52 percent explicitly said they did not want a loan, down 1 point. Record numbers of firms remain on the “credit sidelines”, seeing no good reason to borrow. Only 2 percent reported that financing was their top business problem.

NFIB Commentary

This month's "Commentary" section includes the following observations:

After nine months of 1 percent GDP growth, the economy is set to turn in a better performance. This will result because the denominator in the change calculation is low, and because the huge inventory reduction that knocked a point off the GDP growth rate appears to be over, with an ever so modest increase in plans to build inventory. Consumer spending looks like it will maintain some strength, including car sales, although there are mixed signals on consumer sentiment. It doesn’t appear that capital spending is ready to pick up, but housing will continue to add to growth, even though it is supply constrained, due to a shortage of skilled labor and permitted land.

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 it is plotted on a separate axis to give a better comparison of the two series from the common baseline of 100.

NFIB Optimism and Consumer Confidence

These two measures of mood have been highly correlated since the early days of the Great Recession. However, The two have diverged since their interim peaks (December 2014 for NFIB and January 2015 for Consumer Confidence). A decline in Small Business Sentiment was a long leading indicator for the last two recessions. Are we now seeing a comparable early warning?