Research >> Economics
NFIB Small Business Optimism Index increased 1.4 points to 98.3
|
The Index of Small Business Optimism increased 1.4 points to 98.3 in spite of 5 months of lousy growth. May is the best reading since the 100.4 December reading but nothing to write home about. The 42 year average is 98.0, a bit lower than the 99.5 average through 2007. Eight of the 10 Index components posted improvements. Overall, the Index remained in a holding pattern, a few points below the pre-recession average, although at the 42 year average, and showing no tendency to “break out” into a stronger pattern of economic growth.
Real GDP declined in Q1 following a not very impressive 2014Q4. Special events (weather, dock strike, oil patch weakness) certainly subtracted a point or so from growth, but the fundamental economy did not have enough strength to survive the shocks and that remains the problem. The second quarter did not get off to a good start, growth of course will look better because the denominator is lower in Q1. It looks like trade will be a positive for Q2 as the deficit fell - that will help. Financial markets are driven by “Fed guessing”. In spite of the poor first quarter performance, growth for the 12 months through March 31 was approaching 3 percent, very inconsistent with current Federal Reserve policy, as are current labor market indicators. The Fed’s reticence to move, the continual delays, are negatives for growth, generating considerable uncertainty. A move toward “normalization” would be welcome to the real economy and to savers. The Fed should give up managing asset prices.
The NFIB May survey results confirm that the economy is moving ahead, but at an uninspiring pace. Owners do what is necessary, hire workers when needed, to keep up with growth mostly powered by population growth. Growth is not inspired, owners remain generally pessimistic about a pickup in the economy of any consequence. None of its top issues will be address over the next few years, the Administration is focused on global warming polices that with certainty will depress growth in the near-term for sure.
Owners report that the labor market is, from an historical perspective,getting very tight. Owner complaints about “finding qualified workers” are rising, job openings are near 42 year record high levels, and job creation plans remain solid. Over 80 percent of those hiring or trying to hire in May reported few nor no qualified applicants. This is inconsistent with current Fed policy, which has no impact on the supply of qualified workers.
In spite of the poor first quarter performance, there is no recession in the cards, absent a huge unpredictable negative shock. Reports of positive sales and profit trends auger well for the second half, credit is not a problem and rates are still low (although everyone already has their low rate loan). Capital spending has still not picked up any strength, a firmer record of spending growth will be required (not lower interest rates). But “replacement” demand continues and the need for it grows with time and technological advance.
NFIB data do not look forward much beyond the third quarter, and that appears to be “more of the same”, maybe a slightly faster pace of “plodding”.
Posted: June 9, 2015 Tuesday 07:30 AM