NFIB Small Business Survey: Index Dips Again in April, Still High

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The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for April came in at 104.5, down 0.2 from the previous month's 104.7. The index is at the 97th percentile in this series. Today's number came in above the Investing.com forecast of 104.0.

Here is an excerpt from the opening summary of the news release.

The NFIB Index of Small Business Optimism posted another historically high reading in April, but expectations for future business conditions plunged by eight points, a sign that business owners were shaken by Congress’ failure at the end of March to repeal and replace Obamacare.

“Small business owners were measurably shaken when Congress failed to address one of their most important concerns,” said NFIB President and CEO Juanita Duggan. “Obamacare has crushed small businesses. Small business owners expected the White House and Congress to address that problem. Their failure to do so caused volatility in the Optimism Index.”

The Index dipped 0.2 points April, settling at 104.5. April was the sixth straight month for historically high optimism, a hot streak not seen since 1983. Five of the Index components posted a gain, reaching levels not seen since before the previous administration. Three of the components declined, and two were unchanged. Nearly all of the slight decline was attributable to an 8-point plunge in expected business conditions. Most of the data were collected immediately after Congress failed to repeal and replace Obamacare.

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.

NFIB Optimism Index

Here is a closer look at the indicator since the turn of the century. We are now just below the post-recession interim high.

NFIB Optimism Index Since 2000

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.

NFIB Optimism Index Moving Average

Here are some excerpts from the report.

Labor Markets

Small business owners reported a seasonally adjusted average employment change per firm of 0.19 workers per firm, a very strong showing and not consistent with last month’s Bureau of Labor Statistics (BLS) Payroll Survey number which was a surprise on the low side, but was in agreement with the Household Survey number. Fourteen percent (up 2 points) reported increasing employment an average of 2.2 workers per firm and 10 percent (up 1 point) reported reducing employment an average of 3.5 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 3 percent of owners reported that all their borrowing needs were not satisfied, down 1 point. Thirty-two percent reported all credit needs met (unchanged), and 50 percent explicitly said they did not want a loan. However, including those who did not answer the question, 65 percent of owners have no interest in borrowing. Only 2 percent reported that financing was their top business problem compared to 21 percent citing taxes, 17 percent citing regulations and red tape, and 16 percent the availability of qualified labor. Weak sales garnered 10 percent of the vote.

NFIB Commentary

This month's "Commentary" section includes the following observations:

Small business owners have held on to their optimism, and have reported improvements in activities that signal more growth in the real economy, even if modest. If Congress does not disappoint, small firms are ready to bet on a more optimistic future by investing in their businesses and hiring more workers.

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.

NFIB Optimism and Consumer Confidence

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.

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