Research >> Economics
NFIB Small Business Optimism Index rose 0.8 points in October to 94.9
The Index of Small Business Optimism rose 0.8 points to 94.9, still in the 94 range that has bound it for the past five months and well below the 42 year average of 98. It has been a below average recovery. Five of the 10 Index components posted a gain, 3 declined and 2 were unchanged. The fourth quarter though looks to be weaker with the Uncertainty Index hitting a 42 year high, and as prospects for a “civil” relationship between the Democrats and the Republicans fade regardless of who wins the election. The election turmoil is definitely having an impact. Of those who think the current period is a bad time to expand substantially (56 percent), a record high 39 percent blame the political climate, second only to economic conditions.
The first guess at GDP growth for Q3 was 2.9 percent, a marked improvement over the prior four quarters. But prospects for the fourth quarter are not promising, auto sales are weakening, housing supply is constrained, inventories are still a bit excessive, and consumer sentiment has been declining. Businesses are not inclined to be investing in new plant and equipment, not knowing where already high marginal tax rates might go.
The Federal Reserve passed on a November rate hike as expected even though 9 of the 12 regional banks requested an increase and two FOMC members dissented. The risk of a market disruption in the final week of voting for a president is one worth avoiding, delaying for 30 days won’t matter although delaying for eight years – that’s another matter. The Fed’s monthly (morphing into yearly) delays have been a major source of uncertainty for owners and market participants as well. If the Fed gurus don’t know which way the economy is headed, who does?
The election is days away, and that will likely change the amount of uncertainty in the economy. This will convert “uncertain” and “don’t know” views into firmer views, bad or good, and trigger actions to protect against anticipated policies or take advantage of the expected improvement in the economy. While new uncertainties will likely emerge, the level of uncertainty should diminish. Stay tuned for the November survey which will show the response to the election outcome.
Posted: November 8, 2016 Tuesday 07:00 AM