Small Business Sentiment:
A Fractional Improvement, but "Losing Steam"
The latest issue of the NFIB Small Business Economic Trends is out today. The February update for January came in at 94.1, up 0.2 points from the previous month's 93.9 and the third month of improvement. Today's overall number is at the 21.3 percentile in this series. Since its initial recovery following its Great Recession trough, this index has been stuck in an extremely volatile range for the past three years. Since January of 2011, it has repeatedly bumped a ceiling around the 94.5 level and then retreated. It will be interesting to see if this indicator can break above the 94 level in the months ahead.
Here is an excerpt from the opening summary of the news release.
The Small Business Optimism Index increased by 0.2 points to 94.1. Only three of the Index components improved, two were unchanged, and five were lower indicating that the small business half of the economy was still adding little to growth beyond that needed to support population growth. Technically, January marks the third monthly increases in a row, but unfortunately, each monthly increase is lower than the last. But while improvements are losing steam, the increase still beats a decline. (Link to news release).
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 of the past four years. The NBER declared June 2009 as the official end of the last recession.
The average monthly change in this indicator is 1.29 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.
Inventories And Sales
The findings on small business inventories and sales continue to underscore the general pessimism of the survey. The excerpts below are from the latest monthly report (PDF format).
|The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months compared to the prior three months deteriorated 2 points to a net negative 10 percent. Fourteen (14) percent still cite weak sales as their top business problem, but this is the lowest since June 2008.|
Has the Fed's zero interest rate policy and quantitative easing had a positive impact on Small Businesses?
|Five percent of the owners reported that all their credit needs were not met, 1 point above the record low. Thirty-one (31) percent reported all credit needs met, and 52 percent explicitly said they did not want a loan. Only 2 percent reported that financing was their top business problem compared to 24 percent citing taxes, 22 percent citing regulations and red tape and 14 percent citing weak sales.|
This month's "Commentary" section opens with the following observations:
|Last year finished with a fair uptick in economic activity, but probably not as strong as the “headline” GDP numbers made it look. Overall, GDP was up only 1.9 percent in 2013, down from 2.8 percent in 2012. But the second half of the year posted above trend growth numbers, a rare showing in our 5 year recovery. Exports were strong, that’s good for manufacturing output, but less so for jobs–productivity looking good. A huge share of the growth was in inventory building, nice while it is happening, but usually followed by sub-normal production later as excess stocks are worked off. That will depress activity in the first half of 2014 and keep some prices down.|
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 I've plotted it on a separate axis to give a better comparison of the volatility from the common baseline of 100.
These two measures of mood have been highly correlated since the early days of the Great Recession.