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NFIB: Small Business Survey: "Pretty Much Unchanged"

August 9, 2016

by Doug Short

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. The headline number for July came in at 94.6, little changed from the previous month's 94.5. The index is at the 25th percentile in this series. Today's number came in slightly below the forecast of 94.7.

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

The Index of Small Business Optimism rose one-tenth of a point in July to 94.6, a meager increase showing no real enthusiasm for expansion, expected sales, and making capital outlays, according to the National Federation of Independent Business (NFIB).

“Small business optimism was pretty much unchanged during the month of July and small businesses continue to be in maintenance mode,” said NFIB Chief Economist Bill Dunkelberg. “Uncertainty is high, expectations for better business conditions are low, and future business investments look weak. Our data indicates that there is little hope for a surge in the small business sector anytime soon.”

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

Reported job creation remained weak in July, with the seasonally adjusted average employment change per firm posting a decline of -0.03 workers per firm, although better than June’s -0.17 reading. Fifty-three percent reported hiring or trying to hire (down 3 points), but 46 percent reported few or no qualified applicants for the positions they were trying to fill.


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. Seasonally adjusted, the net percent of owners raising selling prices fell 4 points from June to a negative 2 percent. In spite of the Federal Reserve’s efforts, inflation on Main Street is M.I.A. Seasonally adjusted, a net 14 percent plan price hikes (down 2 points). Prospects for a resurgence of inflation are low, especially with gas prices on the decline again.

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, 1 point above the record low reached in September 2015. Thirty percent reported all credit needs met (down 2 points), and 53 percent explicitly said they did not want a loan, up 6 points.

NFIB Commentary

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

After seven years of “recovery” which hasn’t turned out to be much of one, real GDP posted three quarters of growth averaging 1 percent, dragging down the average of 2.1 percent growth for the recovery period. Compare this to 4.5 percent for the 1983 recovery. At the tail end of this recovery, there are 5 million more food stamp recipients than at the start of the Obama administration. There are 10 million more people on Medicaid. The “work” requirement in the 1996 welfare reform legislation that worked well has been eliminated, perhaps explaining why so many owners with job openings for low skilled workers can’t find qualified applicants, welfare competes with actually taking a job. If this is where the “recovery” ends, it will certainly be a sad performance.

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