Econintersect: The National Federation of Independent Business (NFIB)’s July 2013 monthly optimism index improved marginally from 93.5 to 94.1.
NFIB reports usually contain blasts directed at Washington by NFIB chief economist Bill Dunkelberg.
In an attempt to ‘make lemonade’ from the lousy bushel of lemons the administration has handed the small-business community, owners gave the July optimism Index the great distinction of being the fourth highest reading since December 2007—when the economy slipped into official recession. But let’s not get too excited: The level is still well below the average reading of 100 in the prior 35 years and still half a point below the December 2007 reading.
Unfortunately, nothing is being done to allay the most pressing concerns identified by job creators—dealing with rising health insurance costs, regulations, tax complexity, energy costs and general economic uncertainty. The President wants a deal on ‘corporate taxes’, but most small businesses are not incorporated. Energy policy is more confused than ever and the volume of new regulations is mounting. Should I even mention the mounting problems with Obamacare? We are in the ‘tankeroo,’ not sinking, but trying to stay afloat.
Report Commentary:
Gross Domestic Product (GDP) revisions confirmed what the NFIB survey has been reporting – we are not producing much additional output and not employing many new workers. Growth in the 4th quarter of 2012 was essentially (0.1%), growth in the 1st quarter of 2013 was revised down to 1.1% and the 2nd quarter at 1.7% (first guess). Only 160,000 new jobs (July) would be insufficient to lower the unemployment rate to 7.4% were it not for more people disappearing from the labor force. If you do not want a job, you can not be counted as “unemployed”. Broader measures of unemployment reveal a weak labor market. Much has been made over the high level of job creation in recent months. GDP numbers seem inconsistent, what are they making? July’s job growth is more consistent with the poor GDP numbers.
Meantime, the leadership vacuum continues with Congress unable to negotiate and the President on the campaign trail rarely talking about the big issues while tossing government tidbits to various voter blocks. Employment remains millions below its level in 2008 and only 11% of consumers think government policy is “good” (Reuters/University of Michigan, July survey). This is where we stand after four years of “recovery”.
The amazing stock market continues to surge ahead, even as prospects for earnings growth fade. On Main Street, there is no evidence of profit growth. The economy remains bifurcated, exports turned in a good performance, mostly activity for the large manufacturers, energy companies and agribusiness. Sales for small businesses, especially at service firms, continue to languish. Job openings improved, signaling a tightening in labor markets due as much to departures from the labor force as to the creation of new jobs (of which there were few). But this puts downward pressure on the unemployment rate. Plans to create new jobs also advanced, in spite of pessimistic views of future sales growth, but still historically low and not typical of periods of economic growth.
Some other highlights of July’s Optimism Index include:
- Job Creation. July was another slow month for jobs among NFIB’s 350,000 owners, with the average increase in employment coming in at a negative 0.11 workers per firm, the third negative monthly reading in a row. Owners have stopped reducing employment, but they have not resumed hiring .
- Hard to Fill Job Openings. Twenty (20) percent of all owners reported job openings they could not fill in the current period (up 1 point), a potentially good omen for the unemployment rate. Fifteen (15) percent reported using temporary workers, up 3 points from June. The healthcare law provides incentives to increase the use of temporary and part-time workers and June saw an increase of 360,000 part-time jobs (Household Survey) accompanied by a loss of 240,000 full-time jobs.
- Sales. The net percent of all owners* reporting higher nominal sales in the past three months compared to the prior three months improved a point, rising to a negative 7 percent. The net percent of owners expecting higher real sales volumes rose 2 points, to 7 percent of all owners. These expectations remain depressed and are not the kind that will generate a lot of new employment or new orders for inventories.
- Earnings and Wages. Reports of positive earnings trends improved 1 point in July to a negative 22 percent, restoring them to May’s numbers. Four percent of owners reported reduced worker compensation and 19 percent reported raising compensation, yielding a seasonally adjusted net 14 percent reporting higher worker compensation (unchanged). A net 11 percent plan to raise compensation in the coming months, up 5 points.
- Credit Markets. Credit continues to be a non-issue for small employers, five percent of whom say that all their credit needs were not met in July, unchanged from June and May, and the lowest reading since February 2008. Thirty (30) percent of owners surveyed reported all credit needs met, and 52 percent explicitly said they did not want a loan (65 percent including those who did not answer the question, presumably uninterested in borrowing).
- Capital Outlays. In July, the frequency of reported capital outlays over the past six months fell 2 points to 54 percent, 7 points below the average spending rate through 2007. The percent of owners planning capital outlays in the next three to six months was, again, unchanged at 23 percent. Reports of outlays fell almost across the board, painting a weaker spending picture than the month prior.
- Good Time to Expand. In July, 9 percent characterized the current period as a good time to expand facilities (up 2 points). The net percent of owners expecting better business conditions in six months was a net negative 6 percent, 2 points worse than June’s reading.
- Inventories. The pace of inventory reduction continued in June, with a net negative 10 percent of all owners reporting growth in inventories, a 3 point decline from June. For all firms, a net negative 1 percent (up 1 point) reported stocks too low, a historically “lean” reading. Plans to add to inventories were unchanged from June; the net percent of owners planning to add to inventories remained a negative 1 percent of all firms.
- Inflation. Fourteen (14) percent of the NFIB owners surveyed reported reducing their average selling prices in the past three months (up 2 points), and 17 percent reported price increases (down 2 points). The net percent of owners raising average selling prices was 4 percent, down 4 points. As for prospective price increases, 16 percent plan on raising average prices in the next few months (down 3 points), and 3 percent plan reductions (unchanged). A net 15 percent plan price hikes, down 3 points. Overall the inflation picture is fairly benign.
source: NFIB
