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Small Business Sentiment: Up Modestly but Still Depressed

The latest issue of the NFIB Small Business Economic Trends is out today (see report). The heavily watched Small Business Optimism Index is trying to break above recessionary levels. Here is the opening paragraph:

The National Federation of Independent Business Index of Small Business Optimism rose 1.5 points in January, a modest increase, opening the new year with a reading of 94.1. The slight overall uptick in optimism might have been higher, but was blunted by small business owners’ skepticism about the future and continued hesitancy to spend and hire. Weak sales is still the most frequently cited top business problem. However, price-cutting is fading, and inventory-adjustments to match lower consumer spending appear to be reaching a conclusion.

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.

 

Inflation Prospects on the Horizon

Elsewhere in the report we learn that “the downward pressure on prices appears to be easing as more firms are raising prices and fewer are cutting them. Eighteen percent of owners (down 2 points) reported raising average selling prices, and 20 percent reported average price reductions (down 4 points). January is the 26th consecutive month in which more owners reported cutting average selling prices than raising them. However, the trend is clearly supportive of higher prices in future months. Plans to raise prices rose 4 points to a net seasonally adjusted 19 percent of owners, the highest reading in 27 months.”

Business Optimism Beginning to Outpace 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 I’ve plotted it on a separate axis to give a better comparison of the volatility from the common baseline of 100.

 

As the chart illustrates, in recent months the Small Business Optimism Index has been showing a faster recovery than the Conference Board’s measure of Consumer Confidence.

Related Articles

NFIB Small Business Optimism Index Sees Modest Increase  GEI News Brief

Consumer Confidence Index:  The Best Level Since May 2010  by Doug Short

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  1. [...] Small Business Sentiment:  Up Modestly but Still Depressed  by Doug Short Share this Econintersect Article: This entry was posted in Consumer Sentiment and tagged consumer sentiment, National Federation of Independent Business, NFIB, recession, recovery, small business optimism. Bookmark the permalink. ← Snake Oil, Paul Krugman, Student Loans & Consumer Credit [...]