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NFIB: Small Business Survey Rises Modestly Again in June

July 12, 2016

by Jill Mislinski

The latest issue of the NFIB Small Business Economic Trends is out today. The headline number for June came in at 94.5, up 0.7 from the previous month's 93.8. The index is at the 25th percentile in this series.

Today's number came in above the forecast.

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

The Index of Small Business Optimism rose seven-tenths of a point in June to 94.5, a negligible increase showing no real enthusiasm for making capital outlays, increasing inventories, or expanding, according to the National Federation of Independent Business (NFIB).

"Small business optimism did not go down, which is good, but small businesses are in maintenance mode experiencing little growth," said NFIB Chief Economist Bill Dunkelberg. "Uncertainty is high, expectations for better business conditions are low, and future business investments look weak. Our data indicate that there will be no surge from the small business sector anytime soon and prospects for economic growth are cloudy at best."

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

Fifty-six 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 of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem and the highest reading in this expansion.


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. Twelve percent of owners reported reducing their average selling prices in the past three months (down 1 point and down 6 points from March), and 16 percent reported price increases (down 1 point). Seasonally adjusted, the net percent of owners raising selling prices was up 1 point from May to 2 percent. This follows nearly half the year in negative territory, with more owners cutting prices than raising them. In spite of the Federal Reserve’s efforts, inflation on Main Street is M.I.A.

Credit Markets

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

Five percent of owners reported that all their borrowing needs were not satisfied, 3 points above the record low reached in September 2015. Thirty-two percent reported all credit needs met (up 1 point). Only 2 percent reported that financing was their top business problem. Twenty-nine percent of all owners reported borrowing on a regular basis (unchanged).

NFIB Commentary

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

Federal Reserve officials had the market all set for a June or July rate hike, then came the employment numbers, stunningly low, and then the BREXIT vote. Now, many observers expect no hike for the rest of this year, maybe even in 2017. One data point and a UK vote, and the entire projected policy path is changed.

The NFIB data indicate no surge in growth coming from the small business sector to support Q3 growth... Faced with the Federal Reserve’s “back-peddling” and BREXIT to add to uncertainty, the prospects for economic growth beyond recent experience are cloudy at best.

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 leading indicator for the last two recessions. Are we now seeing a comparable early warning?