NFIB's October 2011 Blast at the Obama Administration

October 11th, 2011
in econ_news

Econintersect: The NFIB's monthly optimism index used to be the news (up 0.8 points ending a six month decline but still recessionary at 88.9).  But now the monthly tirades at government policy make more interesting commentary than dry statistical numbers.

After a strong vote of “no confidence” in the effectiveness of the deal made between Congress and the President, pessimism continued to prevail. The Small Business Optimism Index gained 0.8 points (virtually no change) based on a reduction in the pessimism of sales prospects and expected business conditions, both of which remain solidly negative.

Follow up:

Consumer confidence (University of Michigan survey) barely budged from the August reading, the lowest since 1980. And disagreement with Administration policies continued at record levels among U.S. households.

It was a loss of confidence that caused consumers to cut spending in 2008Q4, plunging the economy into a deep recession as the U.S. population raised the saving rate from 1 to 6 percent causing a reduction in spending of half a trillion dollars at annual rates. And, with no confidence in government policies today, 131,000,000 employed consumers who could spend more do not because they fear the future. Since these workers are very concerned about our inability to get spending and debt under control and restore growth, promises to have even more “stimulus” will increase the level of concern for most if not all of these workers will spend less, not more. If consumers fear the path we are on, then “less is more,” policies that reduce the size of government will increase confidence.

For those who are unemployed, the President’s jobs program will be very ineffective if enacted. Promising temporary tax cuts financed by permanent income tax increases will not play well, especially for small business owners who pay taxes based on personal, not corporate tax rates.

“Saving school teachers, police and fire fighters” is the cover the President uses to justify hundreds of millions in new gifts (from taxpayers!) to state governments. This doesn’t “create” jobs and only some of those jobs “saved” will be police and fire fighters and teachers, who are often funded at the community level. A very misleading ploy to save jobs of union workers. And building roads and bridges will not re-employ the tens of thousands of residential construction workers as the President would have you believe. The skill sets are not well matched and government programs generally require union workers so most small construction firms will not qualify.

In addition, tax breaks for hiring are similarly misdirected. If an owner can’t justify hiring a worker now, getting a tax break of a few thousand dollars will not change the math. The credit only lasts a year, then the full cost of the worker is on the firm. If an added employee can not “pay its way” with added value before the cut, why would this tax change alter the math? Twenty-eight (28) percent said “poor sales” was their top business problem and the tax break doesn’t change that. Better to use the tax “gift” to keep the firm operating for those who are currently employed at the firm.

Highlights of this survey:

  • 28% of small-business owners reported that poor sales is still their top business problem - a top business problem for small-business owners for the past three years.   The net percent of owners expecting better business conditions in six months was a negative 22%, up 4 points from August, but 32 percentage points lower than January.
  • The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months lost 1 percentage point, falling to a net negative 10%, with more firms reported sales trending down than those who report sales trending up. While still negative, this is one of the best readings in over 40 months.
  • The net percent of owners expecting higher real sales gained 6 points from August to a net negative 6%t of all owners. Over the next three months, 22% of owners (not seasonally adjusted) expect improvement (up 1 point) and 36% expect declines (up 2 points).
  • 14% (seasonally adjusted) reported unfilled job openings, down 1 point from August. Over the next three months, 11% plan to increase employment (unchanged), and 12%t plan to reduce their workforce (unchanged), yielding a seasonally adjusted 4% of owners planning to create new jobs, also down 1 point from August. To provide some historical context: in a typical expansion, this Index component usually has double digit readings.
  • According to September’s data, fewer owners are investing in their businesses.  The percent of owners planning capital outlays in the next three to six months fell 1 point to 20%, a recession level reading that has typified the recovery to date.
  • Only 4% reported financing as their No. 1 business problem, and 92% reporting that all their credit needs were met or that they were not interested in borrowing.

source: NFIB


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