Research >> Economics
NFIB Small Business Optimism Index gained 1.8 points to 93.8
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For the second consecutive month, small business optimism rose 1.8 points, according to the National Federation of Independent Business (NFIB) Optimism Index. The small but notable gain settled the December reading at 93.8. This represents the fourth monthly increase since September, suggesting that the rising trend might stick. However, a comparative look at early 2011 shows the Index rising in the early part of the year, only to decline in March and April.
While the Index has gained 5.7 points over the last four months with several indicators posting notable gains, the total reading is still in recession territory. The Index is still 6 points below the pre-recession average and more than 10 points below the same point in the recovery from the 2001 recession. The gains in the Index are supportive of the view that economic growth will pick up in 2012, but nothing dramatic. The level of the Index is consistent with weak growth.
From the perspective of NFIB owners, 2011 was a flat year at best. The Index of Small Business Optimism stood at 94.1 in January and ended the year at 93.9, after dipping as low as 88.1 in August. The best that can be said is that the year ended on an upbeat, with 4 months of improvements. Eight of the ten Index components did end the year higher, the spoilers were Expected Business Conditions in 6 Months, which ended the year 18 points below January readings, and Expected Real Sales Volumes which ended 4 points lower. So, an index that excluded these expectations variables would have ended the year a bit higher.
The “real” components of the Index ended 2011 relatively well positioned compared to January, but at historically low levels nonetheless.
Reports of actually capital outlays increased from 51 percent to 56 percent of all owners after languishing for several years at or below 50 percent.
There are many critics of the proposition that “uncertainty” is a major cause of the slow recovery, many because it reflects badly on the Administration’s policies (which are characterized as “bad” by a 50 year record high percentage of consumers). However, such a “reality” is very logical, and is now confirmed by substantial survey evidence (if common sense wasn’t enough!). Plans for job creation, inventory investment and capital spending are all highly correlated with expected real sales (around 70 percent). Pessimism about future sales translates into less real spending.
The economy appears to be slowly recovering, resolving imbalances in debt, housing and the like. But, it is unlikely that growth will be much better in 2012 than in 2011 even with a solid 3 percent plus fourth quarter. There is still a lot of work to be done.
Posted: January 10, 2012 Tuesday 07:30 AM