The latest issue of the NFIB Small Business Economic Trends is out today. The April update for March came in at 95.2, a a 2.8 drop from the previous month and the lowest reading in nine months. The index is now at the 26th percentile in this series.
The Investing.com forecast was for 98.4.
Here is the opening summary of the news release.
The Small Business Optimism Index fell 2.8 points to 95.2, declining in sympathy with the rather weak stream of reports on the economy. Bad weather was certainly depressing, for both shoppers and the construction industry. All 10 Index components declined, contributing to the 31 point decline in net positive responses. The only good news is that the 10 Index components didn’t fall further, not much to hang on to. Consumer spending has not shown much strength and the saving rate has increased. Not a recession scenario overall for sure, but there is not much growth energy in the economy, especially with the energy boom deflating a bit.
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.
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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.
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Here are some excerpts from the report.
|The net percent of owners reporting an increase in employment fell 5 percentage points to a net negative1 percent of owners, down substantially from the recent high of 9 percent in December 2014. Overall, the average increase in workers per firm was 0.18 workers per firm, besting the stats for January and February which were excellent readings. Fifty percent reported hiring or trying to hire (down 3 points), but 42 percent reported few or no qualified applicants for the positions they were trying to fill. Ten percent reported using temporary workers, down 2 points. Twenty-four percent of all owners reported job openings they could not fill in the current period, down 5 points from February which was the highest reading since March, 2006. A net 10 percent planning to create new jobs, down 2 points but a solid reading.
Has the Fed’s zero interest rate policy and quantitative easing had a positive impact on Small Businesses?
|Five percent of owners reported that all their credit needs were not met, up 2 points but historically low. Thirty-five percent reported all credit needs met, and 48 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 3 percent reported that financing was their top business problem. Thirty-two percent of all owners reported borrowing on a regular basis, up 2 points.
This month’s “Commentary” section includes the following observations:
|First quarter growth is looking quite weak, due in part to weather (reduced shopping, construction etc.), the sharp decline in energy prices (lower employment and capital investment), weakness among our trading partners (lower exports) and dock strikes in the western part of the country. It is surprising that job markets have looked as good as they have given that GDP growth continued to slow from Q4 2014 rates.
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 I’ve plotted it on a separate axis to give a better comparison of the volatility from the common baseline of 100.
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These two measures of mood have been highly correlated since the early days of the Great Recession.
Images: Flickr (licence attribution)
About The Author
My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.
My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.
Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.
Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool