October 2012 Small Business: Still Recessionary Optimism

Econintersect: The National Federation of Independent Business (NFIB)’s October 2012 monthly optimism index rose slightly 0.3 to 93.1 – still very low historically and in recession territory.

NFIB reports usually contain blasts directed at Washington.

““While four of ten survey components rose, the Index still remains in solidly pessimistic—and recessionary territory,” said NFIB chief economist William Dunkelberg.

“In the 40 months since the alleged ‘recovery’ started in July 2009, the Index has never exceeded a reading of 95; the pre-recession average for the Index is 100. The election is over and Washington looks much like it did on November 5th. The fear of stalemate among the small-business community is palpable, as the looming fiscal cliff and the threat of higher costs and more taxes are very real possibilities come January. Until then, not knowing the direction of the economy will always have a dampening impact on spending and hiring.” One indicator that rose slightly in October is the frequency of reported capital outlays in the past six months, increasing 3 points to 54%. Similarly, the percent of owners planning capital outlays in the next three to six months rose one point to 22%. These positive changes, however, are unlikely a sign that capital spending might return to levels more consistent with past recovery periods, as only 7% characterized the current period as a good time to expand facilities. The net percent of owners expecting better business conditions in six months was also unchanged at a net 2%..

The additional report commentary:

The labor markets regained their statistical footing. After California “went missing” in the claims reports, jobless claims rose to nearly 392,000 the week after and fell to 369,000 after that. These are numbers more consistent with the current level of economic activity. Five million workers are still “long term unemployed,” 40% of the total pool of unemployed. The average duration of unemployment is about 40 weeks (median is 20), historically very high. The labor force participation rate is under 64%, below the 66% pre-recession level. This explains a large share of the decline in the unemployment rate; people who give up looking for a job and leave the labor force are not “unemployed.” The 893,000 new jobs in the Household Survey (largely part-time) were inconsistent with private GDP growth of 1.3%. Historically, such a large number occurred during strong growth, as in June 1993 when GDP grew at an 8% annual rate.

Uncertainty about the election has been a major impediment to spending because the Presidential candidates offered very disparate policies for the economy. That is now resolved. We invested $2 billion and lots of time in “change” but the day after the election looked pretty much like the day before: same President, same Senate and House, more or less. Certainly the major players on the stage are the same, the question is has the script changed? If the Republicans were looking for a new cast and an opportunity re-write the past, that hope is gone. If the President was looking for a re-take of the House, that cast will be the same as well. But, the play must go on and it will. Only a re-write of the script by both casts will produce progress. But writers haven’t talked for months….

Investors who had bet on a change expressed their discontent with a major sell-off in the stock market. This of course creates buying opportunities for those who were hoping for no change and got it. There will be many autopsies of the now deceased election results, and many explanations of the outcome. For small business owners, all the uncertainties remain although the odds of resolving them in one direction or another will have changed for many. But overall, it is now unlikely that anything will happen in November to make them more optimistic about the future, as has been the case for many months, even years now. Let’s see what the New Year and the new Congress brings, as it is likely that current Congress will simply “kick the can” at least until January. One thing for sure, the economic pressure to do something will be large indeed. The November survey will reveal a combination of the effects of the election and hurricane Sandy. Regional differences in the performance measures should be large. Stay tuned.

Steven Hansen

source: NFIB