posted on 13 September 2016
from the National Federation of Independent Business
The Index of Small Business Optimism declined two-tenths of a point in August to 94.4, with owners refusing to expand; expecting worse business conditions; and unable to fill open positions.
Market expectations (from Bloomberg / Econoday) was a reading between 94.0 to 96.0 (concensus 94.8).
At 94.4, the Index remains well below the 42-year average of 98. Five of the 10 Index components posted a gain, four declined, and one remained unchanged. The outlook for business conditions in the next six months had the most dramatic change, dropping seven points. Setting an all-time high for the survey, 38 percent of business owners cited the political climate as a reason not to expand. Uncertainty about the economy and government policy also hit record highs among small business owners.
NFIB chief economist Bill Dunkelberg states:
Some other highlights of this Optimism Index include:
Optimism Index. The Index of Small Business Optimism fell 0.2 points to 94.4, still well below the 40 year average of 98. Five of the 10 Index components posted a gain, four declined and one was unchanged. GDP growth in the last three quarters has averaged 1 percent, not a recession but only matching the growth in the population. Hard to figure how the capital stock producing that output is valued at record high levels as reflected in the S&P 500 for example. Maybe the Federal Reserve targeting asset prices with record low interest rates has something to do with that absurdity. NFIB data also reveal another cause of subpar growth this expansion, a sluggish small business sector, historically half of private sector GDP. Compared to the 1983 expansion which followed even higher unemployment rates, this recovery has been subpar in all dimensions, and particularly in job creation. What hasn't been subpar is the growth in pages of regulation in the Congressional Record and the size of the Federal debt.
Labor Markets. Reported job creation remained weak in August with the seasonally adjusted average employment change per firm posting a decline of -0.02 workers per firm. Fifty-six percent reported hiring or trying to hire (up 3 points), but 48 percent reported few or no qualified applicants for the positions they were trying to fill. Fifteen percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem. This issue ranks third out of nine major issues listed behind taxes and the cost of regulation and red tape. Thirty percent of all owners reported job openings they could not fill in the current period, up 4 points and the highest reading in this recovery. Fifteen percent reported using temporary workers, up 2 points. A seasonally adjusted net 9 percent plan to create new jobs, down 3 points from July
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 fell 1 percentage point to a net negative 9 percent. Eleven percent cited weak sales as their top business problem, down 1 point from July. Seasonally adjusted, the net percent of owners expecting higher real sales volumes fell 2 points to a net negative 1 percent of owners, a weak showing. The net percent of owners reporting inventory gains increased 5 points to a net negative 0 percent (seasonally adjusted), restoring some balance after a major reduction in the first half of the year. The net percent of owners viewing current inventory stocks as "too low" improved 2 points to a net negative 2 percent. The net percent of owners planning to add to inventory increased 1 point to a net 1 percent, not a strong picture, but now positive and a contribution to growth if owners follow through as planned.
Capital Spending. Fifty-seven percent reported capital outlays, down 2 points from July. The percentage of owners making an outlay peaked in July 2015 at 61 percent, revisiting that percentage in January but has faded since. The percent of owners planning capital outlays in the next 3 to 6 months rose 3 points to 28 percent. This is 1 point better than the recovery high reading reached in October 2014, but historically weak. The small business sector remains in "maintenance mode". Seasonally adjusted, the net percent expecting better business conditions deteriorated 7 percentage points to a net negative 12 percent. Clearly, expectations for the economy are not conducive to a meaningful improvement in business investment as prospects for profits are poor.
Inflation.Inflationary pressures remain dormant on Main Street. Fourteen percent of owners reported reducing their average selling prices in the past three months (down 2 points), and 16 percent reported price increases (up 1 point). Seasonally adjusted, the net percent of owners raising selling prices rose 5 points from July to 3 percent. In spite of the Federal Reserve's efforts, inflation on Main Street is M.I.A. Seasonally adjusted, a net 15 percent plan price hikes (up 1 point). Prospects for a resurgence of inflation are low, especially with gas prices on the decline again.
Earnings and Wages. A seasonally adjusted net 24 percent of owners reported raising worker compensation, unchanged from July. The net percent planning to increase compensation fell 1 point to a net 14 percent. The strongest reading in this recovery occurred in January with 27 percent reporting higher employee compensation. The lowest was a negative 2 percent in 2009, leaving this month's reading among the best in the recovery. Earnings trends worsened 2 points to a net negative 23 percent reporting quarter on quarter profit improvements. Earnings in the economy appear to be under pressure in the second half.
Credit Markets. Four percent of owners reported that all their borrowing needs were not satisfied, 2 points above the record low reached in September 2015. Twenty-nine percent reported all credit needs met (down 1 point), and 52 percent explicitly said they did not want a loan, down 1 point. Record numbers of firms remain on the "credit sidelines", seeing no good reason to borrow. Only 2 percent reported that financing was their top business problem. Twenty-nine percent of all owners reported borrowing on a regular basis (up 1 point). The average rate paid on short maturity loans fell 10 basis points to 5.2 percent. The net percent of owners expecting credit conditions to ease in the coming months was a negative 5 percent, unchanged from July. Interest rates are low, but prospects for putting borrowed money profitably to work have not improved enough to induce owners to step up their borrowing and spending.
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