Research >> Economics
NFIB Small Business Optimism Index down 0.2 point to 91.2
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The Optimism Index gave up 0.2 points, falling to 91.2. Owner optimism remains at recession levels and has stayed in a recession zone for years, oscillating between 86.5 (in July 2009) and 94.5 (February 2012) since the recession officially ended in June 2009. Prior to 2008, the Index averaged 100, significantly above the current reading. The Index has averaged 90 in this recovery, now three years old and is the worst recovery period from a recession in the NFIB survey history which began in 1973. Nothing happened in July that would make owners more optimistic about the near term future.
If it weren’t for population growth, Gross Domestic Product growth would be about zero. More people eat burgers, get haircuts, drive a vehicle, etc. So, 1 percent population growth will support something like a 1 percent growth in spending. And that’s our basic support level. Absent that (as in Japan and Eastern Europe where it’s near zero), growth would be under 1 percent. And the NFIB indicators point to a continuation of just that kind of growth.
Just for perspective, compare some of this July’s numbers to 2000, arguably the best economy in history, with 64.5 percent of the adult population employed. A record 70 percent reported capital spending in the prior 6 months in the January, 2000 survey compared to 54 percent today. The percent of owners with a job opening peaked at 34 percent in 2000 compared to 15 percent today. A record 19 percent planned to create new jobs late in 1999 compared to 5 percent today. Twenty-eight (28) percent of the owners thought it was a good time to expand (December 1999) compared to 5 percent today. And this is after three years of (alleged) expansion.
But still, with all the data showing painfully slow economic growth, the Administration continues to promote increases in taxes and regulatory costs. Some “experts” argue that the marginal rates don’t matter to hiring and real investment spending and that there is no uncertainty, at least that impacts economic activity. We teach differently in our business schools and economics courses, uncertainty is a core concept in our business theories and models and there is considerable empirical support for the adverse impact of uncertainty on decision making. It would help immensely if they took a course or two.
Overall, it is clear that the “economic growth stars” are not in alignment and that we can expect very sluggish growth for the balance of the year, ever grateful for population growth which will help insure that we don’t experience the dreaded recession. If consumers and business owners were presented with a plan to resolve our calamitous debt/spending cycle that they could believe in, they would spend more. Until then, no risky bets will be placed.
Posted: August 14, 2012 Tuesday 07:45 AM