Courtesy of Doug Short.
The latest issue of the NFIB Small Business Economic Trends is out today. The June update for May came in at 96.6, up 1.4 points from the previous month’s 95.2. Today’s headline number marks the third month of improvement. The index is now at the 30.4 percentile in this series and the highest level since September 2007, three months before the Great Recession.
The Investing.com forecast was for 96.1.
Here is the opening summary of the news release, which takes a typically cautious view of the survey findings.
NFIB Optimism Index rose 1.4 points in May to 96.6, the highest reading since September 2007. However, while May is the third up month in a row, the Index is still far below readings that have normally accompanied an expansion and there have been similar gains in the past that haven’t panned out in this recovery period. Five Index components improved, one was unchanged and four fell, although not by much. (Link to news release).
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 four years. The NBER declared June 2009 as the official end of the last recession.
The average monthly change in this indicator is 1.29 points. To smooth out the noise of volatility, here is a 3-month moving average of the Optimism Index along with the monthly values, shown as dots.
Inventories And Sales
The findings on small business inventories and sales have improved. The excerpts below are from the latest monthly report (PDF format).
| The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past 3 months compared to the prior 3 months improved 1 point to a net negative 1 percent, far better than the negative 34 percent readings in 2009. Twelve (12) percent cite weak sales as their top business problem, the best reading since December 2007, the peak of the expansion. |
Credit Markets
Has the Fed’s zero interest rate policy and quantitative easing had a positive impact on Small Businesses?
| Five percent of the owners reported that all their credit needs were not met, unchanged and 1 point over the record low. Thirty (30) percent reported all credit needs met, and 53 percent explicitly said they did not want a loan. Only 3 percent reported that financing was their top business problem compared to 25 percent citing taxes. |
NFIB Commentary
This month’s “Commentary” section opens with the following observations:
| The Index continued to improve, to the highest level since September 2007. That’s the good news. Three gains in a row – could be the start of a trend, although we have had quite a few of these along the way that didn’t pan out. Not so good is that virtually all of the gain came in expectations for sales and for business conditions, the real spending/hiring components collectively lost 1 point. Still, expectations lead actual decisions, and the gains were large. And the employment measures held ground, so something is going somewhat well. Sales and profit trends are the best seen in years and that is an important motivator for hiring, which strengthened, and capital spending, which unfortunately remained uninspired by the expectations gains. Price hikes are becoming less “tame” but not a real inflation threat yet, and owners, although feeling better about sales prospects and business conditions, are still not willing to borrow and spend. Loan demand remains historically weak and few complain about credit availability or cost. |
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.
These two measures of mood have been highly correlated since the early days of the Great Recession.
