Econintersect: The National Federation of Independent Business (NFIB)’s October 2013 monthly optimism index declined marginally from a corrected 93.9 to 91.6.
NFIB reports usually contain blasts directed at Washington by NFIB chief economist Bill Dunkelberg.
Washington paralysis is never good news for the economy, so it was no surprise that while politicians were arguing over whether or not the government should remain fully operational, small-business optimism measures deteriorated.
Small employers are not fooled by headlines announcing record high stock market indices; everyday they live the economic realities of overregulation, increased taxes, weak sales and a government without any direction or plan for the future. The average value of the Index since the recovery started is 91—8 points below the thirty-five year average through 2007 and well below readings typically experienced in a recovery. The new budget deadline of January 15, 2014 is approaching quickly and Congress continues to wrangle over the disastrous healthcare law and little else. We shouldn’t expect skies to turn blue anytime soon.
Report Commentary:
Typical of the reporting by the “mainstream media” on the economy, CNN (Your Money, Nov 2) asserted that stingy credit was dragging down the small business sector; no mention of the impact of Washington antics. Banks are once again being blamed for the slow recovery, not the Administration’s policies (or lack thereof). However, only 2% of NFIB members cite credit and interest rates as their top business problem, and a record 66% expressed no interest in a loan, obviously due to their dismal view of the future of the economy. It’s not a problem of credit supply; it’s a lack of credit demand due primarily to poor economic prospects. Consumer sentiment is sympathetic to that notion as optimism posted declines in October, signaling that customers are less optimistic as well.
The healthcare law is revealing itself to be everything opponents feared. But what else could be expected when a few hundred people (in one party) decide to restructure 15% of the economy. Nobody read the bill, nobody understood the whole thing, the big picture. Now, as it dissembles, a panicked Administration is throwing even more tax dollars at the project in an effort to stem the hemorrhaging. No surprise in Washington, apparently firms that supported the Obama campaign were awarded contracts for most of the work. Kind of like giving Ms. Pelosi’s husband the exclusive right to dispose of our unneeded post office real estate – what a deal.
The Optimism Index gave up 2.3 points, falling to the average reading in the recovery of about 91.0. No progress. The outlook for business conditions continued to deteriorate, giving up 15 percentage points over the past two months. Plans to hire, expand, make capital outlays, and order more inventory were all weak. Consumers are pessimistic, with sentiment measures falling and fewer than 1 in 10 characterizing government policy as “good”. The misstatements, exaggerations and distortions being pitched to the public are stunning, but after all, these are politicians.
Federal Reserve policy becomes more tenuous as time passes, with many observers believing that QE should end, but it doesn’t, limping on toward another trillion dollars of bond purchases. Shoving too much fuel into the engine can produce a stall. Certainly job growth is not responding, only the counter-factual could justify keeping the foot on the gas pedal. The larger the Fed portfolio, the greater the uncertainty about the consequences of “normalizing” policy, whatever that may mean anymore. And the longer the Fed distorts prices (assets, interest rates), the larger the misallocation of resources that results and the more painful when reality sets in – and it must.
The most critical issues for small business owners are rising health insurance costs, uncertainty about the economy and about economic policy, energy costs, the cost of regulation and red tape and a multitude of issues with the tax code (complexity, frequent changes, loss of profits to fund growth). None of these issues has improved and the prospects are not bright. So, owners will continue to be very cautious, operating in maintenance mode until the future for the economy becomes clearer.
Some other highlights of August’s Optimism Index include:
- Job Creation. Job creation was up in October. NFIB owners increased employment by an average of 0.11 workers per firm in October after September’s decline.
- Hard to Fill Job Openings. Twenty-one (21) percent of all owners reported job openings they could not fill in the current period (up 1 point), and 15 percent reported using temporary workers, up 1 point from September. Most of the jobs “created” will likely be dominated by part-time workers as owners hedge their hiring while they try to fathom the health care law regulations and penalties.
- Sales. The net percent of all owners* reporting higher nominal sales in the past three months compared to the prior three months dropped 2 points to a negative 8 percent. The net percent of owners expecting higher real sales volumes fell 6 points to 2 percent of all owners.
- Earnings and Wages. Earnings trends did not improve in October, remaining at a negative 23 percent. Two percent of owners reported reduced worker compensation and 18 percent reported raising compensation, yielding a net 16 percent reporting higher worker compensation (down 1 point). A net 10 percent plan to raise compensation in the coming months, down 3 points. Overall, the compensation picture remained at the better end of experience in this recovery, but historically weak for periods of economic growth and recovery.
- Credit Markets. Credit continues to be a non-issue for small employers, 6 percent of whom say that all their credit needs were not met in October, unchanged from the previous month. Twenty-eight (28) percent of owners surveyed reported all credit needs met, and 53 percent explicitly said they did not want a loan (64 percent including those who did not answer the question, presumably uninterested in borrowing).
- Capital Outlays. In October, the frequency of reported capital outlays over the past six months rose 2 points to 57 percent. The percent of owners planning capital outlays in the next three to six months fell 2 points to 23 percent.
- Good Time to Expand. Only 6 percent of owners characterized the current period as a good time to expand (down 2 points from September). The net percent of owners expecting better business conditions in six months was a net negative 17 percent, 7 points worse than September and 15 points worse than August.
- Inventories. The pace of inventory reduction continued in September, with a net negative 6 percent of all owners reporting growth in inventories, up 1 point from September. For all firms, a net negative 5 percent (a 5 point drop) reported stocks too low, the lowest reading since 2011. Plans to add to inventories increased 1 point for a net negative 1 percent.
- Inflation. Fourteen (14) percent of the NFIB owners surveyed reported reducing their average selling prices in the past three months (unchanged), and 16 percent reported price increases (up 2 points). The net percent of owners raising average selling prices was 5 percent, up 4 points. As for prospective price increases, a net 18 percent plan price hikes, down 1 point. Twenty percent plan on raising average prices in the next few months (unchanged), and 3 percent plan reductions (up 1 point).
source: NFIB