The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for May came in at 104.5, unchanged from the previous month. The index is at the 96th percentile in this series. Today's number came in below the Investing.com forecast of 105.2.
Here is an excerpt from the opening summary of the news release.
Small business confidence shot up to near record levels last November and is still flying high, according to the latest National Federation of Independent Business (NFIB) Index of Small Business Optimism.
“The remarkable surge in optimism that began last year right after the election shows no signs of slowing down” said NFIB President and CEO Juanita Duggan. “Small business owners are highly encouraged by the President’s regulatory reform agenda, and they remain optimistic there will be tax reform and health-care reform. This is a policy-driven phenomenon.”
The Index for May matched its strong performance in April of 104.5. That means the Index has been at a historically high level for six straight months. Five of the Index components posted a gain, four declined, and one remained unchanged.
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 following the Great Recession that ended in June 2009.
Here is a closer look at the indicator since the turn of the century. We are now just below the post-recession interim high.
The average monthly change in this indicator is 1.3 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.
Here are some excerpts from the report.
Labor Markets
Small business owners hit the hiring pavement with a surge, reporting an adjusted average employment change per firm of 0.34 workers per firm over the past few months. Few readings in the past 43 years of the survey have been higher.
Inflation
How effective has the Fed's monetary policy been in lifting inflation to it two percent target rate?
The net percent of owners raising average selling prices was a net 7 percent (unchanged), continuing a modest but steady increase in the percent of owners raising average selling prices. Nine percent of owners reported reducing their average selling prices in the past three months (down 1 point), and 19 percent reported price increases (down 1 point). The frequency of reported price hikes has ticked up since November, but not enough to produce a lot of inflation. Seasonally adjusted, a net 21 percent plan price hikes (up 3 points).
Credit Markets
Has the Fed's zero interest rate policy and quantitative easing had a positive impact on Small Businesses?
Only 3 percent of owners reported that all their borrowing needs were not satisfied, unchanged and historically very low. Thirty-one percent reported all credit needs met (down 1 point), and 51 percent explicitly said they did not want a loan. Only 1 percent reported that financing was their top business problem compared to 22 percent citing taxes, 19 percent citing the availability of qualified labor, and 13 percent regulations and red tape.
NFIB Commentary
This month's "Commentary" section includes the following observations and opinions:
The small business sector remains poised to do its part to contribute to overall economic growth. The heavy burden of taxes, health insurance and regulations must be eliminated to support their efforts. The New York Federal Reserve estimates second quarter growth at 2.2 percent while the Atlanta Federal Reserve anticipates growth at 3.4 percent. To appreciate the magnitude of that gap, 1.2 percentage points is equal to or greater than the growth of the entire economy in many quarters over the past eight years. Removing the penalties embedded in our tax code and regulatory structure which waste valuable time and hours will do much to speed up the growth rate, making the U.S. a growth leader.
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 it is plotted on a separate axis to give a better comparison of the two series from the common baseline of 100.
These two measures of mood have been highly correlated since the early days of the Great Recession. The two diverged after their previous interim peaks, but have recently resumed their correlation. A decline in Small Business Sentiment was a long leading indicator for the last two recessions.