NFIB Small Business Survey: "Small Businesses Continue to Push the Economy Forward"

The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for October came in at 102.4, up 0.6 from the previous month. The index is at the 84th percentile in this series.

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

The small business half of the economy continued its remarkable economic streak, posting a 0.6 point gain in October’s Optimism Index. The 102.4 reading was buoyed by eight of the 10 Index components advancing, as talk of a recession waned in October. The Uncertainty Index declined 4 points but remains historically high heading into an election year.

“A continued focus on a recession by policymakers, talking heads, and the media clearly caused some consternation among small businesses in previous months, but after shifting their focus to other topics, it’s become clear that owners are not experiencing the predicted turmoil,” said NFIB President and CEO Juanita D. Duggan. “Small business owners are continuing to create jobs, raise wages, and grow their businesses, thanks to tax cuts and deregulation, and nothing is stopping them except for finding qualified workers.”

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.

 

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.

 

Here are some excerpts from the report.

Labor Markets

Job creation held steady in October, with an average addition of 0.12 workers per firm. Net job creation has faded since February from 0.52 workers per firm to 0.12, no surprise as reports that “finding qualified workers” to fill job openings has been the number one business problem this year.

Inflation

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

The net percent of owners raising average selling prices rose 2 points to a net 10 percent, seasonally adjusted.

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 and near a record low. Twenty-nine percent reported all credit needs met (down 1 point) and 55 percent said they were not interested in a loan.

NFIB Commentary

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

The economy will be steady at its current level of activity for the next 12 months. Congress will be focused on other matters, and there is usually inaction in Presidential election years. Any significant change in of trade issues will impact financial markets more than the real economy during this period. Adjustments to a new set of “prices” (tariffs, etc.) take time.

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.