Small Business Sentiment Fell For 5th Straight Month

Small Business Sentiment - Major Decline In Small Business Optimism

The January small business optimism report wasn’t great. Going from great to good is terrible in the rate of change terms. 

As you can see from the chart below, the index fell from 104.4 to 101.2. That missed estimates for 103 and the low end of the consensus range which was 102. This index has fallen 5 straight months which is the first time that happened since 1998. 

It wouldn’t be terrible if we were in 1998 as the stock market didn’t peak until 2000. At this point in the cycle, investors are anticipating a recession so much that one more year without a recession would be a big deal. 

It’s important to recognize that it’s irrelevant that this cycle is almost 10 years old. Important points are consumers aren’t leveraged, and the global economy is slowing. But America outperformed, and sentiment weakened in December and January. This was due to temporary issues like the volatile stock market and the government shutdown.

The 3.2 point drop in January was the largest drop since July 2015. This index is at its lowest point since December 2016. 

As many bears like to point out, most of the post-2016 election gains have been wiped away. I’m not surprised that small business sentiment weakened. 

There was a government shutdown, a trade battle with China, stocks fell 20%, and banks slightly tightened lending standards. The consumer is still in solid shape, but small businesses probably figured a recession was possible this year with all the negativity.

(Click on image to enlarge)

Small Business Sentiment - Pessimistic Economic Expectations Drive Index Lower

Just like consumer sentiment, this index fell because of worries about the future of the economy. 

Personally, I don’t care about the economic analysis of consumers or small businesses because they don’t spend time researching it as I do. If they did spend the time, they wouldn’t be very optimistic right before recessions. 

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