NFIB: Small Business Survey: "Small Business Optimism Soars Post Election"

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1 NFIB: Small Business Survey: "Small Business Optimism Soars Post Election" December 13, 2016 by Jill Mislinski of Advisor Perspectives The latest issue of the NFIB Small Business Economic Trends came out this morning. The headline number for November came in at 98.4, up 3.5 from the previous month's The index is at the 43rd percentile in this series. Today's number came in above the Investing.com forecast of Here is an excerpt from the opening summary of the news release. Small business optimism remained flat leading up to Election Day and then rocketed higher as business owners expected much better conditions under new leadership in Washington, according to a special edition of the monthly NFIB Index of Small Business Optimism, released today. What a difference a day makes, said Juanita Duggan, President and CEO of the National Federation of Independent Business (NFIB). Before Election Day small business owners optimism was flat, and after Election Day it soared. The NFIB Index of Small Business Optimism is one of the oldest and most widely respected economic research reports in the country. It is a survey asking small business owners a battery of questions related to their expectations for the future and their plans to hire, build inventory, borrow, and expand. 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 collapse of the Tech Bubble with the far weaker readings following the Great Recession that ended in June Page 1, 2016 Advisor Perspectives, Inc. All rights reserved.

2 Here is a closer look at the indicator since the turn of the century. The post-recession interim high of occurred in December Page 2, 2016 Advisor Perspectives, Inc. All rights reserved.

3 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. Page 3, 2016 Advisor Perspectives, Inc. All rights reserved.

4 Here are some excerpts from the report. Labor Markets Fifty-eight percent reported hiring or trying to hire (up 3 points), but 52 percent reported few or no qualified applicants for the positions they were trying to fill. 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 (up 3 points), this is in contrast to a net 70 percent raising average prices in the 1970s. Clearly the small business sector can produce inflation given the opportunity to raise prices strong growth in demand. Page 4, 2016 Advisor Perspectives, Inc. All rights reserved.

5 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 from October. Thirty percent reported all credit needs met (up 1 point), and 52 percent explicitly said they did not want a loan, down 1 point. Only 2 percent reported that financing was their top business problem. NFIB Commentary This month's "Commentary" section includes the following observations: Many promises were made in the heat of the election, but delivering will, as always, be a challenge. Counting the Obamacare as a regulation, the roll back of the oppressive regulations including the EPA, OSHA, FLRB and the DOL are at the top of small business owner lists of concerns. Counting the Obamacare as a tax, tax issues account for six of the top ten owner concerns in NFIB s 2016 Small Business Problems and Priorities survey. The 10th ranked problem was the shortage of qualified labor. Federal Reserve policy might be impacted by the appointment of two new Governors of the Federal Reserve System. This could change the current hawks to doves voting balance on the FOMC. But new nominees must be approved by the Senate, so that is more likely to occur in the second half of Which of the current Governors choose to remain and serve out their terms remains to be seen. Any departures provide additional opportunities to change the composition of the FOMC which determines monetary policy. In the meantime, the Federal Reserve will raise rates in December. 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. Page 5, 2016 Advisor Perspectives, Inc. All rights reserved.

6 These two measures of mood have been highly correlated since the early days of the Great Recession. However, The two have diverged since their interim peaks (December 2014 for NFIB and January 2015 for Consumer Confidence). A decline in Small Business Sentiment was a long leading indicator for the last two recessions. Page 6, 2016 Advisor Perspectives, Inc. All rights reserved.