The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for November came in at 107.5, up 3.7 from the previous month and near the all-time high reached in July 1983. The index is at the 99th percentile in this series. Today's number came in above the Investing.com forecast of 104.6.
Here is an excerpt from the opening summary of the news release.
Not since the roaring Reagan economy has small business optimism been as high as it was in November, according to the National Federation of Independent Business (NFIB) Index of Small Business Optimism, released today.
“We haven’t seen this kind of optimism in 34 years, and we’ve seen it only once in the 44 years that NFIB has been conducting this research,” said NFIB President and CEO Juanita Duggan. “Small business owners are exuberant about the economy, and they are ready to lead the U.S. economy in a period of robust growth.”
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 at a post-recession 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
After several solid quarters, job creation slowed in the small business sector as business owners reported a seasonally adjusted average employment change per firm of 0.0 workers. Thirteen percent (down 1 point) reported increasing employment an average of 3.0 workers per firm and 10 percent (down 1 point) reported reducing employment an average of 2.9 workers per firm (seasonally adjusted).
Inflation
How effective has the Fed's monetary policy been in lifting inflation to it two percent target rate?
he net percent of owners raising average selling prices rose 2 points to a net 10 percent seasonally adjusted. Clearly, inflation is not “breaking out” across the country as the Federal Reserve hoped, but the percent of owners raising prices, net of those reducing, has doubled since January, a slow crawl to higher inflation.
Credit Markets
Has the Fed's zero interest rate policy and quantitative easing had a positive impact on Small Businesses?
Reports of higher worker compensation were unchanged at a net 27 percent, historically very strong all year. Owners complain at record rates of labor quality issues, with 85 percent of those hiring or trying to hire reporting few or no qualified applicants for their open positions.
NFIB Commentary
This month's "Commentary" section includes the following observations and opinions:
President Trump promised that we would get tired of “winning” in his term, a logical perspective because the Republicans have majorities in both houses of Congress and the Presidency. There has been important success on regulatory relief and in restructuring the judiciary, and they are now close to enacting tax reform as the year winds down.
The Federal Open Market Committee (FOMC) which conducts monetary policy is undergoing a major facelift.
The NFIB indicators clearly anticipate further upticks in economic growth, perhaps pushing up toward 4 percent GDP growth for the fourth quarter.
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.