The latest issue of the NFIB Small Business Economic Trends is out today. The update for July came in at 95.4, a 1.3 point increase from the previous month. The index is now at the 27th percentile in this series.
The Investing.com forecast was for 95.4.
Here is the opening summary of the news release.
The Small Business Optimism Index rose 1.3 points to 95.4. After giving up over 4 points in June, the Index clawed back 1.3 points in July, a familiar theme now, which has produced the most grudging gains in the Index’s history – and still not above the 42 year average of 98. Expectations for business conditions and real sales gains accounted for half of the net gain in the Index components.
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.
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
Job creation was flat in July. On balance, owners added a net 0.05 workers per firm in recent months, better than June’s -0.01 reading, but still close to the zero line. Fifty-seven percent reported hiring or trying to hire (up 5 points), but 48 percent reported few or no qualified applicants for the positions they were trying to fill. Sixteen percent reported using temporary workers, down 2 points. Twenty-five percent of all owners reported job openings they could not fill in the current period, up 1 point, but 4 points below the highest reading for this year. A net 12-percent plan to create new jobs, up 3 points reversing last month’s loss.
Credit Markets
Has the Fed's zero interest rate policy and quantitative easing had a positive impact on Small Businesses?
Four percent of owners reported that all their borrowing needs were not satisfied, historically low. Thirty-two percent reported all credit needs met, and 51 percent explicitly said they did not want a loan. For most of the recession, record numbers of firms have been on the “credit sidelines”, seeing no good reason to borrow. Only 2-percent reported that financing was their top business problem compared to 22 percent citing taxes, 21 percent citing regulations and red tape and 10 percent citing weak sales.
NFIB Commentary
This month's "Commentary" section includes the following observations:
GDP growth for the first quarter was finally revised to 0.6 percent after an excursion into negative territory. Second quarter growth is initially estimated at 2.3 percent, but with revisions to come. Domestically, the economy feels so flat – because it was, and still is. Exports have been strong in the recession, explaining a lot of things such as the performance of the large firms with profits at a record high share of GDP. The stock market is at record high levels, yet the output of USA, Inc. is less than impressive as shown below. Exports and foreign operations contributed to record high profits for the Large Firm division of USA, Inc. which has been hoarding cash and repurchasing shares, not investing in the real economy.
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 volatility from the common baseline of 100.
These two measures of mood have been highly correlated since the early days of the Great Recession.