Small Business Confidence Takes Another Fall

Small business confidence as measured by the NFIB saw it’s a fifth straight monthly decline in January, falling from 104.4 down to 101.2 and below consensus expectations of 103.0. Uncertainty was definitely the main issue driving the drop in confidence, though, as the NFIB’s Uncertainty Index rose seven points to the fifth highest monthly reading (86) in the survey’s history. As shown in the chart below, the NFIB’s headline index of Small Business Optimism has now declined from a multi-decade high of 108.8 in August to 101.2 with declines in each month in between. What is notable, about this declines is that the current reading of 101.2 is the lowest level since November 2016, indicating that the vast bulk of gains we saw in confidence since the 2016 election have been erased.

With five straight months of declines, the NFIB Small Business Optimism Index in the midst of its longest monthly losing streak since 1998 and tied for its third-longest losing streak on record. While those stats may sound ominous, as the chart above and below indicate, both peaks in the ISM and long streaks of monthly declines in the ISM haven’t necessarily been the best predictors of a recession (gray shaded areas).

While small businesses grew increasingly concerned over the uncertainty regarding the government shutdown and trade, when it comes to their biggest problems, Washington isn’t at the top of the list. Quality of Labor continues to be the biggest problem for small business as it was cited by 23% of those surveyed. Taxes clocked in at 15%, while Government/Red Tape came in at 12%, which was actually down from 14%. Maybe with the government shutdown, there was less bureaucracy to deal with (kidding)?

In fact, not only are Taxes and Government/Red Tape not at the top of the list anymore but on a combined basis, they haven’t been this small of a problem since the last recession.

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