Research >> Economics

NFIB Small Business Optimism Index dropped 0.9 points to 93.5


The Index dropped 0.9 points in June, ending the hope that a revival in sentiment have started. Six of the ten Index components fell, two rose and two were unchanged. The inventory picture deteriorated and was the main contributor to the decline in the Index. More owners were less satisfied with current inventory holdings and plans to increase in the future also deteriorated. So, after two months of solid gains, the Index gave up. No surprise, there was no reason to be more optimistic and lots to worry about.

The revision of first quarter GDP growth to an anemic 1.8 percent at an annual rate confirms that the economy is growing at a very slow pace, not enough to produce many new jobs. The largest contributor to the negative revision was consumer spending, in particular to spending on services, which account for about 70 percent of consumer spending. This sector is very labor intensive and a revival of spending there would certainly improve job creation. Housing is getting better but running into some supply side constraints. Nearly half the builders complain that they are having trouble assembling work crews to build new houses while new home sales are pressing against supply. House prices are rising at double digit rates.

In the meantime, uncertainty reigns supreme, who knows what labor will cost or when or what firm size will have to comply with which rules – Health and Human Services is still writing them. The President’s delay for compliance among those with 50 employees or more is a political move, fearing the bad press that might occur prior to elections from the chaos produced by mandatory compliance. It is clear that the government is not prepared to implement this. Really, a group of people, most with little or no private sector experience, decided to restructure 15 percent of the Gross Domestic Product (GDP). This is what we expected, a rolling disaster – exemptions, special deals, delays, confusion, contradictory regulations. It’s a bad situation in Washington, scandals, no budget deals, no dealing with the big problems, our own government agencies taking advantage of us, Congressional law being suspended by the President, a flood of executive orders, the threat of higher energy costs (the attack on coal). Not a good time to bet on the future by hiring lots of workers with uncertain cost. The NFIB June survey confirms that.

The economy remains “bifurcated”, with the big firms producing most of the GDP growth with little help from small business. That balance is shifting, but unfortunately because larger firms are losing ground, not because small business is growing faster. Housing and energy are helping, and that does involve a lot of small businesses but the rout in housing was so severe that there are now supply constraints developing in new home construction due to lost capacity that cannot be easily reconstituted. Home prices are now increasing at double digit rates. Consumer net worth is allegedly doing well due to stock prices and house prices rising. But the quantity of items held, real wealth (houses, cars, fractions of a company owned), is not increasing that fast, just the prices. Been there, done that.






Posted: July 9, 2013 Tuesday 07:30 AM




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