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NFIB Small Business Optimism Index increased by 1.4 points to 93.9
Owner sentiment increased by 1.4 points to 93.9 in December. Adding November’s gain, the Index has improved 2.3 points to end the year well above the January reading of 88.9 – but lower than three other readings over 94 during the year. It’s hard to make that case that the small business sector has made significant progress. The highest reading in this recovery is 95.4, so December is still short. And that reading is 5 points below the pre-recession average of 100 and nowhere close to the readings over 100 that typify recovery periods. On the plus side, half of the 10 Index components posted a gain, and two were unchanged.
Economists are raising their forecasts for 2014, but this appears to be based more on “hope” than on any real “change” in the fundamentals. Consumers are a bit more optimistic as are small business owners, but in the context of history, these measures are still weak. The nonmanufacturing ISM is continuing to fall as predicted by the NFIB data.
Manufacturing is doing well, but there aren’t many jobs to be had there. Total employment remains millions below its peak (January, 2008, the start of the Great Recession) and much of the decline in the unemployment rate is due to workers leaving the workforce, not new job creation. Absent the stunning decline in the labor force participation rate, estimates put the unemployment rate in double digit levels. So, fewer workers making GDP and population growth projected to be the lowest in decades provide a background for continued slow growth.
NFIB’s December survey did provide some positive signals, with the best job creation figure since 2007 and a large increase in the percent of owners reporting actual capital outlays in recent months. The jump of 9 percentage points in December over November suggests that most of the increase in spending came very late in the year. Expectations for real sales growth and for business conditions over the next six months improved substantially over November readings as well. There is not an obvious event that would trigger these gains in the last month of the year, but they are welcome.
The President thinks the way to address the malaise in the economy is to give another $26 billion to the long-term unemployed, shown to produce new jobs by “independent economists” (we know who that is) according to the President. If you borrow $26 billion from China and give it to consumers, it probably does have a positive impact, but does nothing to fix the economy or encourage labor force participation or improve the labor force. Servicing this debt will soon put a real crimp in the government budget. Also proposed are tax breaks in some part of the country for hiring unemployed people (which only benefits employers who were going to hire anyway; it doesn’t produce extra job creation). Add to that a proposed increase in the minimum wage to $10, alleged to create more spending and jobs, proven by real economists (and common sense) to be incorrect. This is further evidence (if we needed it) that economic policy is about politics and winning votes, not improving the economy.
Even with the improved outlook, more owners still expect the economy to be worse mid-year than expect it to be better (27 percent vs 17 percent). Small business owners will also come face to face with the reality of Obamacare as the year progresses. Since it is an election year, the main theme will be addressing the disparities in income and wealth (i.e. tax the rich and increase welfare programs) rather than promoting policies that would create jobs and raise incomes in a growing economy. This year, policy will be all about votes.
Posted: January 14, 2014 Tuesday 07:30 AM