Small Business Sentiment Setback in March

The latest issue of the NFIB Small Business Economic Trends is out today (see report). In recent months the closely watched Small Business Optimism Index has been trying to break above recessionary levels. Unfortunately the March reading reverses the recent trend.

Here is the opening paragraph (bolded text in the original): 

The Index of Small Business Optimism gave up 2.6 points in March, falling to 91.9. The decline in the percent of owners expecting higher real sales and better business conditions in six months account for 76% of the decline in the Index. The index is consistent with recession-level readings. The decline comes after several consecutive months of a slow but steady growth. Hiring and future plans to hire built on February’s gain and remain the bright spot in an otherwise discouraging report.

“It looks like everyone became more pessimistic in March,” said NFIB chief economist Bill Dunkelberg. “Or, perhaps, this is a ‘new normal’ and we are unlikely to see the surges usually experienced at the start of a recovery. Times are different; government, with new taxes and more restrictions, is a larger drag on the small-business community. Uncertainty continues to cloud the future while the government is persistently tone-deaf to the needs of those who create jobs and wealth. Today’s recession-level reading is, all in all, a real disappointment.”

The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings of the past three years. The NBER declared June 2009 as the official end of the last recession, but the recession mentality still pervades the small business community.


Inventories and Sales a Net Negative

Elsewhere in the report we learn that “The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months worsened by 1 point to a net negative 12 percent, 22 points better than the recession low reading in March 2009 (near the recession bottom), but still indicative of weak customer activity. The net percent of owners expecting higher real sales fell eight points to a net 6 percent of all owners (seasonally adjusted). This is bad news for hiring and inventory investment.”

Business Optimism and Consumer Confidence

The next chart is an overlay of the Business Optimism Index and the Conference Board Consumer Confidence Index. The consumer measure is the more volatile of the two, so I’ve plotted it on a separate axis to give a better comparison of the volatility from the common baseline of 100.


As the chart illustrates, both indexes are currently below their respective levels at the onset of the Great Recession.  Small business owners and consumers need an “attitude” adjustment – they are struggling to escape the pessimism of the recession.

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Conference Board Confirms Consumer Relapse  by Doug Short

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CMI:  Consumer Weakness Continues  by Rick Davis

Employment May Never Recover by John Lounsbury (Seeking Alpha)

Personal Income and Expenditures Show Joe Sixpack Sliding Back into Recession  by Steven Hansen