The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for March came in at 104.7, down 0.6 from the previous month's 105.3. The index is at the 97th percentile in this series. Today's number came in at the Investing.com forecast.
Here is an excerpt from the opening summary of the news release.
The remarkable surge in small business optimism that began in November of last year was sustained in March, according to the National Federation of Independent Business (NFIB) Small Business Economic Trends Report, released today.
“Small business owners remain optimistic about the future of the economy and the direction of consumer confidence,” said NFIB President and CEO Juanita Duggan. “We are encouraged by signs that optimism is translating into economic activity, such as capital investment and job creation.”
The Index slipped 0.6 points in March to 104.7, still a very strong reading. Actual earnings, capital expenditure plans, and job-creation plans posted gains in March. Sales expectations, which have been flying high for months, dropped by 8 points, a sign that the Optimism Index could be moderating after a strong run.
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 a seasonally adjusted average employment change per firm of 0.16 workers per firm, a solid showing. Twelve (down 2 points) reported increasing employment an average of 2.2 workers per firm and 9 percent (down 1 point) reported reducing employment an average of 4.3 workers per firm (seasonally adjusted).
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 5 percent (down 1 point). Twelve percent of owners reported reducing their average selling prices in the past three months (up 2 points), and 19 percent reported price increases (up 3 points). The frequency of reported price hikes has ticked up since November, but not enough to produce a lot of inflation.
Credit Markets
Has the Fed's zero interest rate policy and quantitative easing had a positive impact on Small Businesses?
Only 4 percent of owners reported that all their borrowing needs were not satisfied, up 1 point and historically low. Thirty-two percent reported all credit needs met (up 2 points), and 52 percent explicitly said they did not want a loan. Only 2 percent reported that financing was their top business problem compared to 20 percent citing taxes, 17 percent citing regulations and red tape, and 16 percent the availability of qualified labor. Weak sales garnered 12 percent of the vote.
NFIB Commentary
This month's "Commentary" section includes the following observations:
The surge in small business owner optimism was maintained in March, the fifth month of historically “off-the-charts” readings. Unfortunately, the expectation for economic growth is not off the charts. Official forecasts from the New York and Atlanta Federal Reserve Banks put first quarter growth at 0.9 percent or 2.9 percent as of March 31, hugely disparate estimates. Domestic spending, which excludes exports but includes imports will be a more important measure for small business owners. That should look better with consumer confidence surging, supported by solid job growth.
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.