NFIB Small Business Survey: Lowest Since 2016
The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for January came in at 101.2, down 3.2 from the previous month. The index is at the 75th percentile in this series. Today's number came in below the Investing.com forecast of 103.2.
Here is an excerpt from the opening summary of the news release.
The NFIB Small Business Optimism Index slipped 3.2 points in January, as owners continued hiring and investing, but expressed rising concern about future economic growth. The 101.2 reading, the lowest since the weeks leading up to the 2016 elections, remains well above the historical average of 98, but indicates uncertainty among small business owners due to the 35-day government shutdown and financial market instability. The NFIB Uncertainty Index rose seven points to 86, the fifth highest reading in the survey’s 45-year history.
“Business operations are still very strong, but small business owners’ expectations about the future are shaky,” said NFIB President and CEO Juanita D. Duggan. “One thing small businesses make clear to us is their dislike for uncertainty, and while they are continuing to create jobs and increase compensation at a frenetic pace, the political climate is affecting how they view the future.”
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 was solid in January with a net addition of 0.33 workers per firm (including those making no change in employment), up from 0.25 in December, affirming the outsized job number reported by the Department of Labor and the best reading since July 2018.
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 fell 2 points to a net 15 percent, seasonally adjusted. Finance, insurance and real estate firms most frequently reported raising their average prices, followed by firms in construction. In no industry group did the percent raising prices exceed the percent raising worker compensation, good news for inflation watchers.
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, historically very low. Thirty-three percent reported all credit needs met (up 1 point) and 49 percent said they were not interested in a loan, down 1 point.
NFIB Commentary
This month's "Commentary" section includes the following observations and opinions:
January was an unusual month, a “government shutdown,” uncertainty about federal budgets, and plenty of financial market commentators talking “slowdown” in Europe, China, and in the U.S. For small businesses, hiring and hiring plans signaled a strong economy, job openings were strong, inconsistent with rising weakness in the economy. Inventory spending and capital spending were solid. Of course, that is the “rear view mirror” and owners did express concerns about future sales growth, some weakness in business conditions later in the year and some deterioration in conditions that would be supportive of business expansion. The economy is at “full employment” and it’s hard to grow fast from that position, but solid growth would certainly be welcome.
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.