Courtesy of Doug Short.
The latest issue of the NFIB Small Business Economic Trends is out today (see report). The February update for January is only 0.1 points above the December number. Still, the latest data is the highest level for the Small Business Optimism Index since February of last year. It is only fractionally below the level prior to the last recession.
Here is the opening summary of the report:
The Small Business Optimism Index rose just 0.1 points in January, settling at 93.9. While the increase marks five consecutive months of improvement, the readings from January and February 2011 were actually higher — indicating no net gain for the calendar year. Historically, optimism remains at recession levels. While small business owners appeared less pessimistic about the outlook for business conditions and real sales growth, that optimism did not materialize in hiring or increased inventories plans.
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. Now, over two years later, the recession mentality is showing signs of abating. Today’s 93.9 is approaching the 94.6 reading at the beginning of the last recession.
Improved Sales Outlook, But Still Net Negative
Elsewhere in the report we learn that “The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past 3 months gained 1 point, rising to a net negative 6 percent, still more firms with sales trending down than up. Even with the improvements in retail sales in recent months, 22 percent of the owners still reported “weak sales” as their top business problem.”
Inflation or Deflation?
The NFIB surveys haven’t supported the frequent warnings of the hyperinflationists, although the latest report suggest that this may begin to change: “Eighteen (18) percent of the NFIB owners reported raising their average selling prices in the past 3 months (up 1 point), and 17 percent reported price reductions (down 1 point). Seasonally adjusted, the net percent raising selling prices was -1 percent, down a point from December. Twenty-three (23) percent plan on raising average prices in the next few months, 3 percent plan reductions. Seasonally adjusted, a net 17 percent plan price hikes, up 3 points. With some evidence that spending has picked up, some of these price hikes might stick.”
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. We had seen improvement in recent months, but last month’s Consumer Confidence slipped a bit, and today’s Business Optimism reading is essentially flat.
