Tuesday, 12 June 2012

Small Business Sentiment: Virtually Unchanged

The latest issue of the NFIB Small Business Economic Trends is out today (see report). The June update for May at 94.4 is virtually unchanged from the 0.1 point higher April 94.5. The index hit last month's level previously in February of 2011. For a higher score, we have to look back to December 2007, the month settled on by the NBER as the beginning of the last recession.

Here is the opening summary of the report:
The Index of Small Business Optimism was basically unchanged in May at 94.4, down 0.1 points. A reading of 94.4 is historically low and consistent with the sub-par performance of GDP and employment growth. The individual indicators were mixed, with expected sales in a three month decline. However, some employment components improved and profit trends remained relatively stable after its sharp gain in April.
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 of the past three years. The NBER declared June 2009 as the official end of the last recession.


NFIB Commentary
This month's "Commentary" section helps us put today's number in the larger economic and political context:
The Index did not go down by much, that's the good news. The May reading is still at recession levels from an historical perspective, consistent with very anemic Gross Domestic Product (GDP) and employment growth. The calculus of spending decisions requires an estimate of future sales, tax rates, interest rates and credit availability, labor costs, health care costs, regulatory compliance costs, all of which are very uncertain, meaning that owners cannot make reliable estimates of what will happen to these factors. Most of this uncertainty is coming out of Washington, D.C. Owners can't attach probabilities to outcomes or even decide which outcomes to consider.
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.


With the latest NFIB data, we see that small business confidence has regained the level at the start of the last recession while consumer confidence remains below that level.

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