Econintersect: The NFIB’s June 2012 monthly optimism index fell 0.3 to 94.1:
- nearly wiped out the gains achieved this year (January 2012 = 93.9, 1986 = 100).
- spending plans for capital equipment and inventories accounted for about 40 percent of the indexes decline.
- Political uncertainty continues to be a primary cause for a reticence among small-business owners to expand.
NFIB reports usually contain blasts directed at Washington. This month’s sentiment was uncertainty.
“All in all, this month’s survey was a real economic downer,” said NFIB Chief Economist William Dunkelberg.
“The economy has definitely slowed; job growth will be far short of that needed to reduce the unemployment rate unless lots of unemployed leave the labor force—no consolation. Taxes remain a top concern for the small-business community. With the Supreme Court’s endorsement of the individual mandate as a tax in its health care decision, we will have to wait for July’s survey to realize the effect it will have on small-business confidence. With over 20 new taxes contained in the law—a price-tag of $800 billion—and most of the regulations yet to be written by HHS, the implications for employee costs remain unclear. Uncertainty reigns supreme for much of Main Street.”
The additional report commentary:
The Index plunged 3 points in June, that’s a lot. The 10 Index questions lost a total of 30 percentage point in net favorable responses. The impact of the SCOTUS decision on health care will show up in the July survey as it occurred late in the month, ditto for the transportation bill which didn’t make much of a news splash. The health care decision was probably not what most owners expected, so “disappointment” over that will be reflected in the July survey responses. With over 20 new taxes ($800 billion) and most of the regulations yet to be written by HHS, the implications for employee costs remain unclear.
The rumored hiring of thousands of IRS agents to enforce the health care rules will certainly add to employment and Gross Domestic Product (GDP) since our accounting rules simply assume that the value of the output produced by a government worker is equal to their wage. An equal number of workers using their personal savings to produce a new services that did not sell would add nothing to GDP as no sales were registered and no income received. Job creation will be very weak in June and plans for July look even worse, so there will be very little progress on the jobs front in the coming months. No inflation issue on Main Street and there is nothing the Federal Reserve can do to increase employment. Rates are as low as they have ever been and more reductions will not help, but the promise of more action by the Federal Reserve will keep Wall Street busy and appease Congress.
The economy definitely slowed mid-year, not a huge recession threat but slower than earlier in the year. Job growth will be far short of that needed to reduce the unemployment rate unless lots of unemployed leave the labor force. NFIB members didn’t add a lot of jobs and don’t plan to in the coming months. Capital spending and inventory investment also weakened. Expectations for improvements in sales and business conditions faded, so no reason to hire additional workers or buy new inventory. “Political uncertainty” remained historically high as the reason why the current period is not a good time to expand. All in all, this month’s survey was a real economic downer.
For those who want a summary of the survey:
Capital Expenditures: Overall, the stats on capital expenditures are consistent with the sluggish performance of the economy. The frequency of reported capital outlays over the past six months dropped 3 points to 52 percent, failing to get out of the rut carved out in mid-2008. Of those making expenditures, 37 percent reported spending on new equipment (unchanged), 18 percent acquired vehicles (down 6 points), and 11 percent improved or expanded facilities (down 3 points). Five percent acquired new buildings or land for expansion (down 2 points) and 13 percent spent money for new fixtures and furniture (unchanged). The percent of owners planning capital outlays in the next three to six months declined 3 points to 21 percent. Only five percent characterized the current period as a good time to expand facilities (seasonally adjusted), down 2 points. The net percent of owners expecting better business conditions in 6 months was a negative 10 percent (an 8 point decline). Not seasonally adjusted, 25 percent expect deterioration in business conditions (a 5 point increase), and 14 percent expect improvement (down 4 points).
Sales: The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months lost 7 points, falling to negative five percent, this after reaching a five year high of a net four percent in April. The low for the cycle was a net negative 34 percent (July 2009) reporting quarter over quarter gains. Twenty-three (23) percent still cite weak sales as their top business problem, historically high, but down from the record 33 percent reading in December 2010. Seasonally unadjusted, 26 percent of all owners reported higher sales (last three months compared to prior three months, up 1 point) while 28 percent reported lower sales (up 1 point). Consumer spending remains weak, especially on services. The net percent of owners expecting higher real sales lost 5 points, falling to a net negative three percent of all owners (seasonally adjusted), producing a four month decline of 15 percentage points. Not seasonally adjusted, 29 percent expect improvement over the next three months (down 7 points) and 25 percent expect declines (up 4 points). Expectations this weak are not likely to generate job creation or inventory investment.
Job Creation: Posting the first negative reading since December, the net change in employment per firm over the past few months (seasonally adjusted) was -0.11. Seasonally adjusted, nine percent of the owners added an average of 2.6 workers per firm over the past few months, and 12 percent reduced employment by an average of 2.8 workers. The remaining 79 percent of owners made no net change in employment. Forty-four (44) percent of the owners hired or tried to hire in the last three months and 33 percent reported few or no qualified applicants for positions. The percent of owners reporting hard to fill job openings lost 5 points, falling to 15 percent of all owners. This was a strong reversal of May’s result and suggests the unemployment rate will rise. Not seasonally adjusted, 10 percent plan to increase employment at their firm (down 7 points), six percent plan reductions, up 1 point. Seasonally adjusted, the net percent of owners planning to create new jobs fell 3 points to three percent, an unfortunate reversal of two months of improved readings.