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NFIB: Small Business Survey: Slight Improvement

May 10, 2016

by Jill Mislinski

The latest issue of the NFIB Small Business Economic Trends is out today. The headline number for April came in at 93.6, up 1.0 from the previous month's 92.6. The index is at the 20th percentile in this series.

Today's number came in above the forecast of a rise to 93.2.

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

The Index of Small Business Optimism rose 1 point in April to 93.6, but owners still cannot find qualified workers to fill open positions and cite a poor economy and the political climate as their two main reasons for not expanding, according to the National Federation of Independent Business’ (NFIB)monthly economic survey released today.

"Despite a gain in NFIB’s optimism reading, small business owners remain extremely pessimistic about the economy, and rightfully so," said NFIB Chief Economist William C. Dunkelberg. "It was a relief to see the Index turn up, ending a long string of declines. However, it’s still down from December 2014 when the Index hit an expansion high of 100."

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.

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-three percent reported hiring or trying to hire (up 5 points), but 46 percent reported few or no qualified applicants for the positions they were trying to fill. Hiring activity increased substantially, but apparently the “failure rate” also rose as more owners found it hard to identify qualified applicants.


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

In spite of the Fed’s best efforts to generate inflation for the past seven years (an event most consumers would not want), inflationary pressures remain dormant on Main Street. Seasonally adjusted, the net percent of owners raising selling prices was negative 1 percent, after three months at a negative 4 percent.

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-one percent reported all credit needs met (unchanged), and 52 percent explicitly said they did not want a loan. Only 2 percent reported that financing was their top business problem compared to 21 percent citing taxes. Twenty-nine percent of all owners reported borrowing on a regular basis, down 3 points.

NFIB Commentary

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

The Federal Reserve continues to send out a message of economic weakness, indicating that the economy is too weak to be able to handle a 25 basis point increase in the Federal Funds rate. This reinforces the uncertainty felt on Main Street and supports the reluctance to spend and hire reflected in the NFIB measures. The Fed has been trying for years to reach its targets of “maximum employment” and 2 percent inflation without success. There is no cheerleader for the economy.

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.