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Friday, March 29, 2024

Small Business Sentiment: The Recession Continues Unabated

Courtesy of Doug Short

The latest issue of the NFIB Small Business Economic Trends is out today (see report). The July report for June shows a fractional decline in the overall index number.

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

NFIB’s monthly Small-Business Optimism Index dropped one tenth of a point (0.1) in June, settling at 90.8, an unsurprising reading, basically unchanged from the previous month and solidly in recession territory. While some indicators rose slightly – including expected capital outlays – pessimism about future business conditions and expected real sales gains tugged the Index down, causing a small but disappointing drop in the Index for the fourth consecutive month. Although June marked the second year anniversary of the recovery, it appeared there was little happening to make small business owners optimistic.

“Small-business owners are registering a vote of ‘no confidence’ in the federal government,” said NFIB Chief Economist Bill Dunkelberg. “Between the deluge of new regulations and a Washington policy agenda that is largely ignorant of Main Street needs, stubbornly low consumer spending, and grave concern among small firms about the federal budget, there is not much to be optimistic about as a small-business owner. Who can blame the prevalence of pessimism when administration officials are telling Congress that small businesses need to pay more in taxes to support government spending programs?”

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.

 

 

Profits

Elsewhere in the report we learn that “Reports of positive earnings trends were unchanged from last month, a net negative 24% of all owners, not a pretty picture, but the best reading in 42 months. The recent rise in the percent of owners successfully raising prices is contributing to some improvement in the bottom line, but sales growth is not helping. Corporate profits are at a record high level as a share of GDP, but the story is very different on Main Street. For those reporting lower earnings compared to the previous three months, 54% cited weaker sales (up 4 points), 2% blamed rising labor costs, 15% higher materials costs, 2% higher insurance costs, and 5% blamed lower selling prices. Five percent blamed higher taxes and regulatory costs.”

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.

 

 

 

 

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