The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for January came in at 105.9, up 0.1 from the previous month's 105.8, and its highest since December 2004. The index is at the 99th percentile in this series. Today's number came in above the Investing.com forecast of 105.1.
Here is an excerpt from the opening summary of the news release.
Small business optimism rose again in January to its highest level since December 2004, suggesting that the post-election surge has staying power, according to the monthly National Federation of Independent Business (NFIB) Index of Small Business Optimism, released today.
“The stunning climb in optimism after the election was significantly improved in December and confirmed in January,” said NFIB President and CEO Juanita Duggan. “Small business owners like what they see so far from Washington.”
The Index reached 105.9 in January, an increase of 0.1 points. The uptick follows the largest month-over-month increase in the survey’s history. Five of the Index components increased and five decreased, but many held near their record high.
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 interim high with 105.9.
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
Fifty-three percent reported hiring or trying to hire (up 2 points), but 47 percent reported few or no qualified applicants for the positions they were trying to fill. Fifteen percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem (up 3 points).
Inflation
How effective has the Fed's monetary policy been in lifting inflation to it two percent target rate?
The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months compared to the prior three months improved 5 percentage points to a net negative 2 percent. This is the best reading since September 2015, and the third best reading since December 2014, but historically still weak. Consumer optimism soared after the election but this has yet to be translated into the positive sales report trends that typify an expansion period.
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, unchanged over the past few months. Thirty-one percent reported all credit needs met (up 2 points), and 52 percent explicitly said they did not want a loan. However, including those who did not answer the question, uninterested in borrowing, 65 percent of owners have no interest in borrowing. Record numbers of firms remain on the “credit sidelines”, seeing no good reason to borrow yet, in spite of the surge in optimism.
NFIB Commentary
This month's "Commentary" section includes the following observations:
Four percent of owners reported that all their borrowing needs were not satisfied, unchanged over the past few months. Thirty-one percent reported all credit needs met (up 2 points), and 52 percent explicitly said they did not want a loan. However, including those who did not answer the question, uninterested in borrowing, 65 percent of owners have no interest in borrowing. Record numbers of firms remain on the “credit sidelines”, seeing no good reason to borrow yet, in spite of the surge in optimism.
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.