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NFIB: Small Business Survey "Remains Flat"

January 12, 2016

by Doug Short

The latest issue of the NFIB Small Business Economic Trends is out today. The headline number for December came in at 95.2, up 0.4 from the previous month's 94.8. The index is at the 26th percentile in this series.

Today's number came in a bit below the forecast of an increase to 95.4.

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

NFIB survey remains flat, with small business owners divided on sales outlook, business conditions.

“Small business owners will be listening to the President’s address tonight hoping to hear him talk about things that will grow the economy and help the little guys.”

“The President appears to be shifting his attention away from the economy and toward foreign policy and guns so it’s no surprise that few small business owners expect the business climate to be better in the next six months.”

Bill Dunkelberg, NFIB Chief Economist

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 closeup of the indicator since the turn of the century.

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 faded a bit in December, with the average employment gain per firm falling to -0.07 workers from .01 in November, basically flat for the last few months. Fifty-five percent reported hiring or trying to hire (unchanged), but 48 percent reported few or no qualified applicants for the positions they were trying to fill. Fifteen percent reported using temporary workers, down 1 point. Twenty-eight percent of all owners reported job openings they could not fill in the current period, up 1 point and at the highest level for this expansion. This is a solid reading historically and indicates no significant change in the unemployment rate.


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

Seasonally adjusted, the net percent of owners raising selling prices was negative 4 percent, down 7 points and the first negative number since 2013. It appears that there was a lot of price cutting late in the year to boost sales and reduce inventory. Seasonally adjusted, a net 20 percent plan price hikes (up 3 points). If history repeats, this will be offset by unplanned reductions in selling prices. Until spending posts a substantial pickup, it will be hard to raise prices. In general, inflation occurs when demand pushes up against capacity, something not likely to occur any time soon.

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. Thirty-two percent reported all credit needs met (unchanged), and 52 percent explicitly said they did not want a loan. For most of the recovery, record numbers of firms have been on the “credit sidelines”, seeing no good reason to borrow. Only 2 percent reported that financing was their top business problem compared to 22 percent citing taxes.

NFIB Commentary

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

The Federal Reserve finally pulled the trigger and raised 25 basis points. Chair Yellen observed that the Fed had not reached its inflation goal of 2 percent based on the PCE deflator or its new goal of “maximum employment” (metrics unspecified). While experts will puzzle over what data would satisfy those criteria, the larger concern is that the Fed has been unable to reach either of its objectives using the tools available to them. Another puzzle, why is the Fed trying to attain 2 percent inflation when inflation by this measure has averaged less than that for decades, an accomplishment that should be celebrated. It looks like a mindless exercise. The goal was set some time ago and the reasons were vague and unclear. But now, the Fed marches toward it regardless, reluctantly leaving zero rates behind. If inflation does hit the 2 percent target, how will policy change?

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 volatility 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.