The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for June came in at 103.6, down 0.9 from the previous month. The index is at the 93rd percentile in this series. Today's number came in below the Investing.com forecast of 104.4.
Here is an excerpt from the opening summary of the news release.
The Index of Small Business Optimism fell 0.9 points to 103.6, but sustained the surge in optimism that started the day after the election. The Index peaked at 105.9 in January and has dropped 2.3 points to date, no doubt in part due to the mess in Washington, D.C. Four of the 10 Index components posted a gain, five declined, and one was unchanged. Progress is being made, but poorly communicated, and the biggest issues, healthcare and tax reform remain stuck in the bowels of Washington politics. Economic growth in the first half of this year will be about the same as we have experienced for the past three or four years, no real progress. There isn’t much euphoria in the outlook for the second half of the year.
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 reported an adjusted average employment change per firm of negative 0.04 workers per firm over the past few months, basically zero. This followed one of the best readings since 2008 posted in May.
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 posted a surprising 6 point decline in June, falling to 1 percent. Eleven percent of owners reported reducing their average selling prices in the past three months (up 2 points), and 14 percent reported price increases (down 5 points). Seasonally adjusted, a net 19 percent plan price hikes (down 2 points).
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, up 1 point and historically very low. Twenty-seven percent reported all credit needs met (down 4 points) and 54 percent explicitly said they did not want a loan, up 3 points. The reduction in the percent not having their credit needs satisfied moved to the “don’t want a loan” category.
NFIB Commentary
This month's "Commentary" section includes the following observations and opinions:
First quarter GDP growth was finalized at 1.4 percent, a poor performance even after allowing for the peculiarities of GDP accounting. Consumer sentiment (University of Michigan) fell a few points to the lowest reading this year, apparently consumers are not finding the economy looking a lot better going forward. This, even though income grew at the fastest pace in two years. Much of this growth was due to dividends, which most consumers don’t receive as part of their regular income. Spending grew very little and more small business owners reported sales declines quarter on quarter than reported gains.
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.