The Index gained 2.6 points, rising to 92.1. That beats falling, but it is barely above the recovery average of 90.7, making it another very poor reading. Four Index components rose, 2 fell, 6 were unchanged, a lot of “noise”, no clear direction. Owners are very pessimistic about the economy, with a net negative 15 percent expecting business conditions to be better in 6 months. As bad as that sounds, it was a 13 percentage point improvement over March.

The world is starting to look a bit strange in many respects. Stock markets are at record high levels and corporate profits a record share of GDP (nominal). Yet real GDP barely grew in 2012 Q4 and a sub-par 2.5 percent in 2013 Q1. Just how we get record profits but hardly produce more output and have prices hardly growing is a bit of a contradiction. The NFIB survey suggests that the small-business sector is not growing. New business starts appear to be slightly ahead of terminations, but both levels are historically low. The Federal Reserve has stopped worrying about inflation. (Historically, inflation was considered the #1 concern of the Fed.) The Vicechair of the Fed has suggested that inflation will now be a tool used to impact employment rather than a target of policy. Although one can argue that without Quantitative Easing there would have been even less job growth, it does not appear that the massive QEs have had much of an impact on employment growth. The Fed is providing a trillion dollars’ worth of finance to the government, money that it does not have to tax from us or borrow from the private sector or the rest of the world. Debt is piling up and future servicing costs will be formidable. Meantime, interest income to consumers has declined half a trillion dollars over the past few years, that’s a huge loss of income and certainly impairs spending. Washington is always ready to help debtors but not savers.

Small-business owners remain quite pessimistic about the future and this has depressed spending and hiring. Capital spending is low which will eventually impact worker productivity as will the conversion of full-time workers to part-time workers induced by the health care law. Managing two part-time workers to do the work of one full-time worker too expensive to hire will add to inefficiency. Although better than the past few months, the percent expecting business conditions to be worse in 6 months exceed the percent expecting improvement by 15 percentage points. More now expect real sales to be higher than lower by 4 percentage points, better than the past 6 months in which the margin was negative, but very thin. Only 4 percent think it’s a good time to expand. In “normal” times, that would be a double digit figure. Owners are preparing for higher taxes and the full implementation of the health care law, both large negatives. Consumers agree, less than 10 percent think government is doing a “good” job, 47 percent firmly believe it is “bad”. More customers would trigger more hiring and inventory investment and capital spending, but consumers seem to be unwilling to cooperate. But, only 23 percent plan to make capital expenditures and as many firms plan to cut inventories as plan to add to them. This does not stimulate much growth.