Econintersect: The National Federation of Independent Business (NFIB)’s February 2013 monthly optimism index rose slightly 1.9 to 90.8 – but still at levels associated with past recessions.
NFIB reports usually contain blasts directed at Washington.
“While the Fortune 500 are enjoying record high earnings, Main Street earnings remain depressed. Far more firms report sales down quarter over quarter than up.” – NFIB chief economist Bill Dunkelberg.
“While the Fortune 500 are enjoying record high earnings, Main Street earnings remain depressed. Far more firms report sales down quarter over quarter than up,” said NFIB chief economist Bill Dunkelberg. “Washington is manufacturing one crisis after another—the debt ceiling, the fiscal cliff and the sequester. Spreading fear and instability are certainly not a strategy to encourage investment and entrepreneurship. Three-quarters of small-business owners think that business conditions will be the same or worse in six months. The Index gained almost 2 points last month; that was good news. But, until owners’ forecast for the economy improves substantially, there will be little boost to hiring and spending from the small business half of the economy.”
The President has crisscrossed the country telling us how many people will be hurt if he has to deprive them of his largess if spending is cut. And he has chosen cuts that will maximize the pain felt by the citizens, refusing the opportunity to actually lead and manage the cuts more sensibly. But he has nothing to say about the pain he inflicts on the producers of jobs that could help those who are unemployed and want to work. That pain is obvious on Main Street, most recently in the reports of the Regional Federal Reserve Banks. His programs are damaging the economy and creating more dependents on his largess while financed by those who make the economy run. He is clearly not in the mood to compromise much even though consumers are not happy with policy. It is not likely that higher taxes and higher energy costs will make them happy. Only 15% of consumers in the University of Michigan/Reuters February poll thought government is doing a “good” job, 43% a “poor” job. Seventy-six percent of NFIB owners think that business conditions will be the same (ugh!) or worse in six months – not a pretty picture.
The economy is clearly bifurcated, with S&P profits at record levels while GDP posts a growth rate of 0.1% (excluding government, growth would have been over 1%, still a lousy reading). The small business half of the economy is clearly languishing based on NFIB surveys of its 350,000 member firms. So, the average growth of these two sectors is the growth of the private economy (government excluded) and that’s not good. With some evidence that the large firms will not perform as well this year as last, prospects for strong growth this year are not good. Housing and energy will be bright spots for job creation, but can’t carry the whole burden of restoring employment to its 2007 level.
The labor market does seem to be finding better footing, although the indicators are not strong enough to produce the kind of job growth needed to expeditiously speed the unemployment rate to the Federal Reserve’s 6.5% target. February was a decent month for a change, especially for private sector jobs (the ones we want!), let’s hope for a repeat performance. But until owners’ forecast for the economy improves substantially, there will not be much of a boost to hiring and spending from the small business half of the economy.
Some other highlights of February’s Optimism Index include:
- Sales: Weak sales is still the top business problem for 18 percent of owners. The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months was unchanged in February, at a negative 9 percent. There are still far more owners reporting declining sales than reporting positive sales trends. Seasonally unadjusted, 19 percent of all owners reported higher sales (last three months compared to prior three months, unchanged) and 33 percent reported lower sales (up 1 point). Consumer spending remains weak, especially on services although durable goods sales have recently shown some strength. The net percent of owners expecting higher real sales volumes rose 2 points to 1 percent of all owners (seasonally adjusted), 11 points below the 2012 cycle high of a net 12 percent reached in February, 2012. Not seasonally adjusted, 33 percent expect improvement over the next three months (up 8 points) and 24 percent expect declines (down 8 points). While sales trends improved, they are still weak when viewed through historical context.
- Earnings and Wages: Earnings trends were unchanged from January’s reading of a net negative 26 percent. Not seasonally adjusted, 13 percent of small employers reported profits higher quarter to quarter (unchanged), and 43 percent reported profits falling (up 3 points). In comparison, the Fortune 500 are posting record high profits, revealing a bifurcated economy. Three percent of small employers reported reduced worker compensation and 19 percent reported raising compensation, yielding a seasonally adjusted net 14 percent of businesses reporting higher worker compensation (up 1 point). Seasonally adjusted, a net 8 percent plan to raise compensation in the coming months, up 1 point.
- Credit Markets: Small business demand for credit remained weak in February, given the weak economy. Only 7 percent of owners surveyed reported that all their credit needs were not met, up 1 point but only 3 points above the record low. Twenty-nine percent reported all credit needs met, and 51 percent explicitly said they did not want a loan (64 percent including those who did not answer the question, presumably uninterested in borrowing as well). Only two percent of owners reported that financing was their top business problem. Twenty-nine percent of all owners reported borrowing on a regular basis, down 2 points and 1 point shy of the record low of 28 points set in November 2010. A net 7 percent of owners reported that loans are “harder to get” compared to their last attempt (asked of regular borrowers only), unchanged from January, though it is now one in four of those in the market. The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted negative 8 percent (more owners expect that it will be “harder” to arrange financing than easier), 1 point better than in January.