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NFIB Small Business Optimism Index Tumbles 2.3 Points to 91.6


The NFIB Index of Small Business Optimism lost 2.3 points to 91.6. Two components, the outlook for business conditions and the outlook for real sales gains, accounted for 52 percent of the Index decline. A weaker outlook for business produced dissatisfaction with inventory stocks, and fewer plans to create new jobs. The average value of the Index since the recovery started is 91, 8 points below the 35 year average through 2007 and well below readings typically experienced in a recovery. The current reading is hardly something to cheer about. It is very hard to identify any current developments that would make owners more optimistic. The new budget deadline of January 15, 2014 is approaching quickly and Congress continues to wrangle over the healthcare law and little else.

Typical of the reporting by the “mainstream media” on the economy, CNN (Your Money, Nov 2) asserted that stingy credit was dragging down the small business sector; no mention of the impact of Washington antics. Banks are once again being blamed for the slow recovery, not the Administration’s policies (or lack thereof). However, only 2 percent of NFIB members cite credit and interest rates as their top business problem, and a record 66 percent expressed no interest in a loan, obviously due to their dismal view of the future of the economy. It’s not a problem of credit supply; it’s a lack of credit demand due primarily to poor economic prospects. Consumer sentiment is sympathetic to that notion as optimism posted declines in October, signaling that customers are less optimistic as well.

The healthcare law is revealing itself to be everything opponents feared. But what else could be expected when a few hundred people (in one party) decide to restructure 15 percent of the economy. Nobody read the bill, nobody understood the whole thing, the big picture. Now, as it dissembles, a panicked Administration is throwing even more tax dollars at the project in an effort to stem the hemorrhaging. No surprise in Washington, apparently firms that supported the Obama campaign were awarded contracts for most of the work. Kind of like giving Ms. Pelosi’s husband the exclusive right to dispose of our unneeded post office real estate - what a deal.

The Optimism Index gave up 2.3 points, falling to the average reading in the recovery of about 91.0. No progress. The outlook for business conditions continued to deteriorate, giving up 15 percentage points over the past two months. Plans to hire, expand, make capital outlays, and order more inventory were all weak. Consumers are pessimistic, with sentiment measures falling and fewer than 1 in 10 characterizing government policy as “good”. The misstatements, exaggerations and distortions being pitched to the public are stunning, but after all, these are politicians.

Federal Reserve policy becomes more tenuous as time passes, with many observers believing that QE should end, but it doesn’t, limping on toward another trillion dollars of bond purchases. Shoving too much fuel into the engine can produce a stall. Certainly job growth is not responding, only the counter-factual could justify keeping the foot on the gas pedal. The larger the Fed portfolio, the greater the uncertainty about the consequences of “normalizing” policy, whatever that may mean anymore. And the longer the Fed distorts prices (assets, interest rates), the larger the misallocation of resources that results and the more painful when reality sets in – and it must.

The most critical issues for small business owners are rising health insurance costs, uncertainty about the economy and about economic policy, energy costs, the cost of regulation and red tape and a multitude of issues with the tax code (complexity, frequent changes, loss of profits to fund growth). None of these issues has improved and the prospects are not bright. So, owners will continue to be very cautious, operating in maintenance mode until the future for the economy becomes clearer.




Posted: November 12, 2013 Tuesday 08:25 AM




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