Econintersect: The National Federation of Independent Business (NFIB)’s July 2012 monthly optimism index fell 0.2 to 91.2 – the lowest point of 2012, but still higher than one year ago.
NFIB reports usually contain blasts directed at Washington. This month’s sentiment was on taxation.
“Congress has recessed without a plan to resolve our calamitous debt/spending cycle or a lasting answer to our dangerous fiscal cliff,” said NFIB Chief Economist William Dunkelberg.
“Meanwhile, the White House has presented us with some ‘fuzzy math,’ asserting that only three percent of small businesses will be impacted by planned tax increases. That’s not true. The denominator in that calculation is wrong—it should be the 6 million employer firms that provide jobs to half the private sector workforce, meaning that more like 15 percent of small businesses can expect higher taxes in January. The lack of meaningful actions to address tax reform in Washington adds to the certainty of sluggish growth for the remainder of 2012, and the uncertainty of what will come in 2013.”
The additional report commentary:
If it weren’t for population growth, Gross Domestic Product growth would be about zero. More people eat burgers, get haircuts, drive a vehicle, etc. So, 1 percent population growth will support something like a 1 percent growth in spending. And that’s our basic support level. Absent that (as in Japan and Eastern Europe where it’s near zero), growth would be under 1 percent. And the NFIB indicators point to a continuation of just that kind of growth.
Just for perspective, compare some of this July’s numbers to 2000, arguably the best economy in history, with 64.5 percent of the adult population employed. A record 70 percent reported capital spending in the prior 6 months in the January, 2000 survey compared to 54 percent today. The percent of owners with a job opening peaked at 34 percent in 2000 compared to 15 percent today. A record 19 percent planned to create new jobs late in 1999 compared to 5 percent today. Twenty-eight (28) percent of the owners thought it was a good time to expand (December 1999) compared to 5 percent today. And this is after three years of (alleged) expansion.
But still, with all the data showing painfully slow economic growth, the Administration continues to promote increases in taxes and regulatory costs. Some “experts” argue that the marginal rates don’t matter to hiring and real investment spending and that there is no uncertainty, at least that impacts economic activity. We teach differently in our business schools and economics courses, uncertainty is a core concept in our business theories and models and there is considerable empirical support for the adverse impact of uncertainty on decision making. It would help immensely if they took a course or two.
Overall, it is clear that the “economic growth stars” are not in alignment and that we can expect very sluggish growth for the balance of the year, ever grateful for population growth which will help insure that we don’t experience the dreaded recession. If consumers and business owners were presented with a plan to resolve our calamitous debt/spending cycle that they could believe in, they would spend more. Until then, no risky bets will be placed.
A summary of the survey:
Capital Expenditures: The frequency of reported capital outlays over the past six months gained 2 points to 54 percent, still failing to get out of the rut they have been stuck in since early 2008. In 2007, an average of 60 percent reported making capital outlays. So, it appears that spending remains in “maintenance” mode. Of those making expenditures, 38 percent reported spending on new equipment (up 1 point), 19 percent acquired vehicles (up 1 point), and 14 percent improved or expanded facilities (up 3 points). Six percent acquired new buildings or land for expansion (up 1 point) and 10 percent spent money for new fixtures and furniture (down 3 points). Overall, the stats are consistent with the sluggish performance of the economy. The percent of owners planning capital outlays in the next 3 to 6 months was unchanged at 21 percent, a dispiriting result. Only five percent characterized the current period as a good time to expand facilities (seasonally adjusted) in contrast to 10 percent last December and 28 percent in December 2004, just to illustrate how weak the current reading is. The net percent of owners expecting better business conditions in six months was a negative eight percent, a 2 point improvement. Twenty percent reported “poor sales” as their top business problem, down 3 points. Overall, the outlook is not conducive to a lot of new capital spending or hiring.
Sales: While “poor sales” has been eclipsed by other concerns as the top business problem, it still remains the No.1 issue for 20 percent of owners surveyed. Consumer spending remains weak. The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months lost 4 points, falling to negative nine percent, this after a 7 point decline in June. The five year high of a net four percent was reached in April. The low for the cycle was a net negative 34 percent, set in July 2009. The net percent of owners expecting higher real sales lost 1 point, falling to a net negative four percent of all owners (seasonally adjusted), producing a five month decline of 16 percentage points. What looked like the beginning of a recovery in sales and expectations has fizzled, very similar to what occurred in 2011.
Job Creation: July looked a lot like June in terms of job growth—namely, it was negative. The reported net change in employment per firm over the past few months (seasonally adjusted) was -0.04; not as poor as June’s -0.11, but still negative at a time when growth is needed. Readings had been on the rise; from December to May they were zero or positive, suggesting that employment might be turning around. But June, and now July, have ended that possibility. Seasonally adjusted, 10 percent of owners surveyed added an average of 3.0 workers per firm over the past few months, but 11 percent reduced employment an average of 2.3 workers. The remaining 79 percent of owners made no net change in employment. Forty-eight (48) percent of owners hired or tried to hire in the last three months, and 38 percent reported few or no qualified applicants for positions. Overall, there was no meaningful job creation. The percent of owners reporting hard to fill job openings held steady at 15 percent of all owners after falling 5 points in June; May’s reading was the best in 47 months.
Historical Perspective: When comparing some of the July report’s numbers to those surveyed in 2000, arguably the best economy in history, a stark contrast is drawn, particularly after three years of recovery and alleged expansion. A record 70 percent of owners reported capital spending in the prior six months in the January 2000 survey compared to 54 percent in July 2012. The percent of owners with a job opening peaked at 34 percent in 2000 compared to 15 percent today. A record 19 percent planned to create new jobs late in 1999 compared to five percent today. More than a quarter of owners (28 percent) thought it was a good time to expand (December 1999) compared to five percent today.