November 8th, 2011
Econintersect: The NFIB's monthly optimism index rose slightly to 90.2 - but remains entrenched in recession territory. But the captivating aspect of recent NFIB releases is the commentary on the economy and the politicians.
Consumer spending improved a bit last quarter but prospects for future spending are still dismal. Consumer confidence posted only marginal gains over the last few months and confidence in economic policies remains at 50 year record low levels according to the University of Michigan’s consumer confidence survey where only 7% of household heads approve.
In addition to the uncertainty surrounding Washington’s economic policies, the “Greek plunge” also looms as an economic threat. Yes, the U.S. can print money to pay our sovereign debt but the Greeks can’t. Although printing money comes with its own set of problems, namely inflation. So it’s up to the Greeks and the E.U. figure out a solution. All of this uncertainly and dismal consumer sentiment does nothing to spur small business hiring and confidence, and the latest NFIB survey reflect this sentiment.
From the perspective on Main Street, the Federal Reserve is “out of bullets”, not much it can do to reduce unemployment. It can’t lower loan rates at most banks as floor rates are in effect and nobody wants to borrow as there are few investment opportunities in people or equipment – no payoff with a lousy economy. The average rate reported on short-term money has been stuck around 6 percent for years now. The Federal Reserve has given it its best.
Adding insult to injury, the U.S. fiscal policy is still in disarray. All that is proposed is higher spending, more regulations and increased taxes to support them. The President’s jobs bill is poorly constructed as the “incentives to hire” are ineffective. Giving owners a temporary tax cut which are funded by permanent tax increases doesn’t mean they will use the proceeds to hire workers that can’t add enough value to cover their salaries.
Washington seems to be avoiding the most important problems, namely the entitlement programs, that affect our out of control debt. Observers have continually warned about the bad ending that awaits those who live beyond their means creating the debt super-cycle. If this recession is not the ugly end predicted, it is certainly a warning of what will come if we don’t change our ways.
Highlights of this survey:
- Sales remain a major problem for small firms—26 percent of the owners indicated, “poor sales” is their top business problem, apparent in the frequency of reported weaker sales trend. Unadjusted, 22 percent of all owners reported higher sales (down 3 points) while 30 percent reported lower sales (up 1 point). This is not a level of economic activity that will support job creation.
- The net percent of owners expecting better business conditions in six months was a negative 16 percent, 6 points better than September, but still 26 points worse than January. The net percent of owners (seasonally adjusted) reporting higher sales over the past 3 months lost 2 points, falling to a net negative 12 percent, more firms with sales trending down than up. The net percent of owners expecting higher sales gained 2 points to a seasonally adjusted net negative 4 percent, 17 points below January’s reading. This is bad news for hiring and inventory investment.
- The frequency of reported capital outlays over the past six months rose 2 points to 52 percent. The record low of 44 percent was reached in August 2010. Of those making expenditures, 36 percent reported spending on new equipment (up 1 point), 18 percent acquired vehicles (up 1 point), and 13 percent improved or expanded facilities (unchanged). Five percent acquired new buildings or land for expansion (down 1 percent) and 11 percent spent money for new fixtures and furniture (up 2 points). These numbers have not changed all year, “range bound” around current levels.
- Over the next three months, 9 percent plan to increase employment (down 2 points), and 12 percent plan to reduce their workforce (unchanged) yielding a seasonally adjusted net of 3 percent of owners planning to create new jobs, down a point from September and 2 points below August, the strongest reading for 2011 to date. NFIB owners reported an overall reduction in employment for the 5th month in a row, posting an average reduction of 0.1 workers per firm in the October survey. Fourteen percent (seasonally adjusted) reported hard to fill job openings (unchanged).
- Four percent of owners reported financing as their most important business problem. So, for the overwhelming majority, credit availability is not a significant problem. Ninety-one percent reported that all their credit needs were met or that they were not interested in borrowing. Nine percent reported that not all of their credit needs were satisfied, the record low is 4 percent reached in 2000.