posted on 08 December 2015
Written by Steven Hansen
The National Federation of Independent Business's (NFIB) optimism index collapses in November after three stagnant months. The Index had no significant changes in the three months prior. . The market was expecting the index between 95.6 to 96.6 with consensus at 96.0 - versus the actual at 94.8.
NFIB chief economist Bill Dunkelberg states:
Some other highlights of this Optimism Index include:
Optimism Index. The Index of Small Business Optimism was fell 1.3 points in November, dropping the Index to 94.8, this after three months of no change of any significance. Clearly the small business sector has no expansion energy. Still well below the 42 year average, the Index continues to signal a "plodding" economy, responding to population growth and a growing replacement need as the capital stock ages. Auto sales remain strong, sold and serviced by small businesses, but produced by large manufacturers. The services sector has been showing more life, a small business domain, while manufacturing has faded. Overall, going nowhere and not quickly. Growth in the fourth quarter is likely to come in between 2% and 2.5%.
Labor Markets. Fifty-five percent reported hiring or trying to hire (unchanged), but 47 percent reported few or no qualified applicants for the positions they were trying to fill. Sixteen percent reported using temporary workers, up 2 points. Twenty-seven percent of all owners reported job openings they could not fill in the current period, unchanged over the past 2 months. This is a solid reading historically and suggests no significant change in the unemployment rate. A seasonally adjusted net 11 percent plan to create new jobs, unchanged. A seasonally adjusted net 23 percent of owners reported raising worker compensation, up 2 points and at an expansion high. The net percent planning to increase compensation rose 3 points to a net 20 percent, historically strong for this recovery
Inventory and Sales. The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past 3 months compared to the prior 3 months improved 3 percentage points to a net negative 5 percent. This is an "improvement" only in an economy that is delivering a sub-par performance. Nine percent cited weak sales as their top business problem, down 3 points. Overall, the direction of these changes is positive, but they are insufficient to really change the picture. Expected real sales volumes posted a 5 point decline, falling to a seasonally adjusted net negative 1 percent of owners expecting gains, a long way down from the 20 percent reading in December 2014. The net percent of owners reporting inventory increases was a net negative 3 percent (seasonally adjusted), down 1 point. The net percent of owners viewing current inventory stocks as "too low" lost 2 points, fall to a net negative 6 percent, as weak sales expectations made current stocks look excessive and future sales are not expected to grow much. The net percent of owners planning to add to inventory was unchanged at a net 0 percent, not much help for Q4 GDP growth. With weak expectations for sales and business conditions, prospects for strong inventory investment are poor.
Capital Spending. Sixty-two percent reported capital outlays, up 4 percentage points from November. Overall, capital spending was much stronger in November, perhaps anticipating Congress' passage of expensing and other tax extenders. The percent of owners planning capital outlays in the next 3 to 6 months fell 1 point to 25 percent, not a strong reading historically but among the best in this expansion. Seasonally adjusted, the net percent expecting better business conditions deteriorated 3 points to a net negative 7 percent, a rather negative outlook for an "expansion". The seasonally adjusted net percent expecting higher real sales fell 5 points to a net negative 1 percent of all owners. Owner expectations for the economy overall appear to anticipate a continuation of "under-performance".
Inflation. Seasonally adjusted, the net percent of owners raising selling prices was 3 percent, up 1 point from October. This is bad news for the Federal Reserve which is trying to stoke the flames of inflation, while for consumers, the news is good. Twenty-three percent plan on raising average prices in the next few months (up 6 points). percent plan reductions (unchanged), far fewer than actually reported reductions in past prices. Seasonally adjusted, a net 17 percent plan price hikes (up 3 points). If history repeats, this will be offset by unplanned reductions in selling prices.
Earnings and Wages. Earnings trends deteriorated 3 points, falling to a negative 19 percent reporting quarter on quarter profit improvements. Far more owners are reporting profits lower quarter to quarter than higher. A seasonally adjusted net 23 percent of owners reported raising worker compensation, up 2 points and at an expansion high. The net percent planning to increase compensation rose three points to a net 20 percent, historically strong for this recovery. However, it is not clear how increased comp is divided between take home wages and rising benefits.
Credit Markets. Three percent of owners reported that all their borrowing needs were not satisfied, 1 point above the record low reached in September. Thirty-two percent reported all credit needs met (up 2 points), and 52 percent explicitly said they did not want a loan. Only 2 percent reported that financing was their top business problem. Twenty-seven percent of all owners reported borrowing on a regular basis, down 1 point. The average rate paid on short maturity loans fell 40 basis points to 4.7 percent. Loan demand remains historically weak, owners can't find many good reasons to borrow to invest when expectations for growth are not very positive. The net percent of owners expecting credit conditions to ease in the coming months was a negative 4 percent, a 1 point improvement.
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