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NFIB: Small Business Index Unchanged in October

November 10, 2015

by Doug Short

The latest issue of the NFIB Small Business Economic Trends is out today. The update for October came in at 96.1, unchanged from the previous month. The index remains at the 29th percentile in this series.

Today's number came in slightly below the forecast of 96.4.

Here is the opening summary of the news release.

"The October NFIB survey gave no indication of a resurgence in growth in the small business sector with the Index remaining below the 42 year average of 98. The labor market components might have held at historically strong levels but this time owners reported no net growth in employment, which is a significant drop from reports in the previous four 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

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 came to a halt in October, with owners adding a net 0.0 workers per firm in recent months. Fifty-five percent reported hiring or trying to hire (up 2 points), but 48 percent reported few or no qualified applicants for the positions they were trying to fill. Fourteen percent reported using temporary workers, unchanged from September.

Credit Markets

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

Three percent of owners reported that all their borrowing needs were not satisfied, up 1 point from the record low reached in September. Thirty percent reported all credit needs met (unchanged), and 53 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. In the Great Recession, no more than 5 percent cited credit availability and interest rates as their top problem compared to as high as 37 percent in the Volcker era.

NFIB Commentary

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

The Federal Reserve decided not to help the economy by surprising markets with no change in the Fed Funds rate in September, adding to the large cloud of uncertainty. Instead the Fed indicated that China and other weak countries needed their support along with domestic players threatened by global weakness. Those concerns are being "walked back" by FOMC members in the face of widespread angst from all quarters. Living in their world of models, QE is supposed to work, hoarding trillions of dollars of risk free assets is supposed to be a "positive". For some FOMC members, reality has not yet set in. One FOMC member even supports more QE. But, what would that accomplish other than adding to their already unnervingly large portfolio?. Owners make it clear that credit availability and costs are not holding them back. But 40 percent are significantly distressed about Fed indecisiveness and another 35 percent are "somewhat" concerned. More "uncertainty" is the enemy of small businesses. What does the Fed fear that few others seem to worry 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 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.