NFIB Small Business Survey: "Small Business Optimism Sees Major Spike In November"
The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for October came in at 104.7, up 2.3 from the previous month. The index is at the 93rd percentile in this series.
Here is an excerpt from the opening summary of the news release.
Small business optimism posted the largest month-over-month gain since May 2018, rising 2.3 points to 104.7 in November. The exceptional Optimism Index reading was bolstered by seven of the 10 Index components advancing, led by a 10-point improvement in earnings. Owners reporting it is a good time to expand increased by 6 points and those expecting better business conditions increased by 3 points. The NFIB Uncertainty Index fell 6 points in November to 72, adding to the 4-point drop in October and the lowest reading since May 2018.
“This historic run may defy the expectations of many, but it comes as no surprise to small business owners who understand what a supportive tax and regulatory environment can do for their companies,” said NFIB Chief Economist William Dunkelberg. “As the two-year anniversary of the Tax Cuts and Jobs Act’s passage approaches this month, small businesses, the world’s third largest economy, are using those savings to power the American economy.”
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 jumped in November, with an average addition of 0.29 workers per firm, the highest level since May. Net job creation had faded from February’s 0.52 workers per firm to September’s 0.10. November’s strong course reversal is a positive sign in filling more open positions.
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 12 percent, seasonally adjusted. Unadjusted, 8 percent (down 2 points) reported lower average selling prices and 17 percent (up 1 point) reported higher average prices.
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 near a record low. Twenty-eight percent reported all credit needs met (down 1 point) and 58 percent said they were not interested in a loan.
NFIB Commentary
This month's "Commentary" section includes the following observations and opinions:
What really matters to small business owners are the issues that directly impact their business. And right now, the biggest problem is finding qualified labor to fill open positions for 26 percent of owners, far more than those citing taxes or regulations. Two years ago, Congress and the President provided real, significant tax relief to small business owners. Now owners are anxious to have their tax cuts made permanent, so Congress needs to get back to work.
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.