NFIB Small Business Survey: "Small Business Optimism Shatters Record Previously Set 35 Years Ago"

The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for August came in at 108.8, up 0.9 from the previous month and its highest of all time. The index is at the 100th percentile in this series. Today's number came in above the Investing.com forecast of 108.2.

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

The NFIB Small Business Optimism Index soared to 108.8 in August, a new record in the survey’s 45-year history, topping the July 1983 highwater mark of 108. The record-breaking figure is driven by small business owners executing on the plans they’ve put in place due to dramatic changes in the nation’s economic policy.

“Today’s groundbreaking numbers are demonstrative of what I’m hearing everyday from small business owners – that business is booming. As the tax and regulatory landscape changed, so did small business expectations and plans,” said NFIB President and CEO Juanita D. Duggan.“We’re now seeing the tangible results of those plans as small businesses report historically high, some record breaking, levels of increased sales, investment, earnings, and hiring.”

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.

 

Here is a closer look at the indicator since the turn of the century. We are now at a post-recession high.

 

The average monthly change in this indicator is 3.0 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.

 

Here are some excerpts from the report.

Labor Markets

After posting significant gains in employment in July, job creation slowed among small firms in August, perhaps because there were fewer workers available to hire because job openings hit a 45 year record high.

Inflation

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

The net percent of owners raising average selling prices rose 1 point to a net 17 percent, seasonally adjusted. The net percent of firms raising price was negative in each of the first three quarters of 2016, averaging -2 percent. In the fourth quarter it was 2 percent, and has marched steadily upward ever since.

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, unchanged and just 1 point above the record low. Thirty-three percent reported all credit needs met (up 1 point) and 51 percent said they were not interested in a loan, up 1 point.

NFIB Commentary

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

Credit is not a problem, few report being unable to meet their financing needs. The Ten Year Treasury yield did hit 3 percent, a rate typically used by small business lenders as the base for loan interest rates. And, the Federal Reserve is expected to tack on another 50 basis points by year end. Mortgage rates may be affecting the housing market, although the inability of builders to increase housing supply and the asociated rise in house prices are probably a bigger problem for our construction firms who can’t hire the workers they need.

Politics, rather that the strong economy and low unemployment, will continue to dominate the news. But this is not likely to have much of an impact on the level of economic activity which is on course to equal or surpass last quarter’s 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.

 

These two measures of mood have been highly correlated since the early days of the Great Recession. The two diverged after their previous interim peaks, but have recently resumed their correlation. A decline in Small Business Sentiment was a long leading indicator for the last two recessions.