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NFIB Small Business Optimism Index fell 0.1 points to 94.0
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Owner optimism went nowhere in August as the Index fell 0.1 points, statistically no change. As “calm” as the Index appears, there was turmoil in the details. Job creation plans jumped 7 points to levels not seen since 2007. Yet, last month firms shed the largest number of employees in months. Capital spending and inventory investment plans increased as well, all activities that would put some energy into GDP growth. But, reports of quarter to quarter net gains in sales deteriorated 17 points and profit trends followed, giving up 13 points. Expectations for business conditions in six months also became more negative. Yet, sales expectations improved 8 points. All of this is a rather perplexing set of statistics; internally consistent on some dimensions as lower sales bring lower profits, but contradictory in other ways with lower job openings but huge gains in hiring plans. The September survey will hopefully straighten this out.
Overall, the Index of Optimism says the small business sector is going nowhere and that’s what it feels like. Consumer sentiment is falling so there is no wind in the sails of the consumption barge. It floats, but no speed. The Reuters/University of Michigan survey puts support of government policies at single digits. Owner uncertainty about government economic policy ranked in their top five business problems, no change on that front and as confusing as ever. The PMI held at the 55 level, but the jobs component fell which was a surprise. Private construction was up 10 percent year over year, and that could mean more jobs in construction for small businesses.
Owners reported lousy performance in the past few months with employment cuts, falling sales and profits, no ability to raise prices, and weak sales the top business problem for 1 in 5 employers. In particular, spending on services (70 percent of consumption) is very sluggish, up 0.5% year over year and declining at a 1.5% annual rate in July. This is where jobs are generated. Disposable income is up only 0.8% year over year, so no support for spending there. The savings rate is very low again therefore not much room to support more spending with less saving. Durable goods spending has posted strong growth, but this are doesn’t produce many new jobs.
Yet, job creation plans for the next few months surged (after seasonal adjustment) and plans to make capital outlays and expand inventory holdings improved as well. While more owners expect the economy to sink further over the next six months than improve, there was a surge in expectations for gains in real sales volumes at their own companies. This is paradoxical at the macro level, although with differing regional economies, possible.
Financial markets are glued to Syria, but that will have little impact on the real economy nor will Federal Reserve “tapering” have a noticeable impact on the real side. Financial markets (where trading, not investing, dominates) will see more volatility. If tapering occurs, it will fall on Treasury purchases, not MBS. The market is a bit short of Treasuries for doing business anyway, so any reduction in the $85 billion in purchases will fall on Treasury bonds. Overall, the NFIB survey holds little promise of any more than the 2 percent growth we have experienced since the recovery began in 2009. That means unemployment will remain high and if the rate falls, it is likely that a decline in the labor force will be the cause, not job creation unless owners really mean what they said in the August survey.
Posted: September 10, 2013 Tuesday 07:30 AM