Every month, Econintersect tries to pick through the National Federation of Independent Business (NFIB) survey to find bits of wisdom to convey. The remarkable part of the June 2011 is that it seems stuck in low gear.
Here is the opening paragraph (bolded text in the original):
NFIB’s monthly Small-Business Optimism Index dropped one tenth of a point (0.1) in June, settling at 90.8, an unsurprising reading, basically unchanged from the previous month and solidly in recession territory. While some indicators rose slightly – including expected capital outlays – pessimism about future business conditions and expected real sales gains tugged the Index down, causing a small but disappointing drop in the Index for the fourth consecutive month. Although June marked the second year anniversary of the recovery, it appeared there was little happening to make small business owners optimistic.
The meat in this survey is the attack on the government’s mentality and understanding of small business:
Small business is invisible to them beyond the press conferences. Indeed, Treasury Secretary of the Treasury Geitner told small business owners in his Congressional testimony that the Administration needs more of their money to support government spending, remember the “1099 health care requirement” that was supposed to catch all sorts of tax cheats?
Arguing that only 3 percent of the owners would be impacted, he suggested that if owners don’t pay up, education will get less money – not that Washington spends money on anything effectively, including education; they always cut something that hurts, not the political pork and patronage that cost billions. The “3 percent” figure is highly misleading, since the denominator in that calculation is based on 30 million Schedule C claims. But there are only six million employer firms in the U.S. that employ people other than the owner(s) so if the numerator is correct, the figure for those impacted firms that employ someone would be five times larger than the Treasury Secretary intimates. That’s the Administration’s “job creation” policy.
Also, the Administration seems to enjoy the leadership vacuum it has created. Nobody is in charge except the regulators who relentlessly pursue the “big government” agenda by issuing truckloads of edicts. The President brushes off criticism of the NLRB/Boeing controversy by saying he doesn’t involve himself with the NLRB (other than making recess appointments of SEIU cronies!). Does he think people really believe this? Did anyone notice that the TSA is now unionized, even though the original legislation prohibited this? About 8,000 of 40,000 employees voted for the union, that was all it took to put all employees under the union management which is now meeting with TSA. Stay tuned.
The Administration and its Wall Street affiliates don’t seem to understand the nature of the problems on Main Street, which is no surprise because few of them have ever had a real private sector job. But this produces bad policy, at best benign but often detrimental to the recovery they claim they want and that is underway. June was the two year anniversary of the recovery, in case you didn’t notice.
The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings of the past three years. The NBER declared June 2009 as the official end of the last recession, but the recession mentality still pervades the small business community.
Elsewhere in the report we learn that “Reports of positive earnings trends were unchanged from last month, a net negative 24% of all owners, not a pretty picture, but the best reading in 42 months. The recent rise in the percent of owners successfully raising prices is contributing to some improvement in the bottom line, but sales growth is not helping. Corporate profits are at a record high level as a share of GDP, but the story is very different on Main Street. For those reporting lower earnings compared to the previous three months, 54% cited weaker sales (up 4 points), 2% blamed rising labor costs, 15% higher materials costs, 2% higher insurance costs, and 5% blamed lower selling prices. Five percent blamed higher taxes and regulatory costs.”
Business Optimism and Consumer Confidence
The next chart is an overlay of the Business Optimism Index and the Conference Board Consumer Confidence Index. The consumer measure is the more volatile of the two, so it has been plotted on a separate axis to give a better comparison of the volatility from the common baseline of 100.
As the chart illustrates, both indexes are currently below their respective levels at the onset of the Great Recession.