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NFIB Small Business Optimism Index gained 0.1 points to 98.0
The Index of Small Business Optimism gained 0.1 points to reach 98.0, the long-term average including the Great Recession and the third highest reading since early 2007. Only eclipsed by November and December 2014 which were a bit higher. Of the ten Index components, the largest gain was in the percent of owners reporting hard-to-fill openings (3 points). Changes were smaller in other components, 2 point increase for inventory investment plans, negative 2 points for job creation plans, and less for the other components. Overall, not a lot of movement in the overall Index or in the components.
The economy lost a lot of momentum in the fourth quarter, with GDP growth now estimated at 2.2 percent (up 2.4 percent for the year) after strong second and third quarter performances. Imports grew substantially, accompanying the huge decline in oil prices. The reduction in oil prices was a great tax cut for the economy, granted by the private sector. Gasoline prices plunged, although recently they have risen steadily, adversely impacting consumer sentiment, mostly due to problems with refining capacity. But gas prices remain much lower than year ago levels, continuing to feed consumer spending and saving.
Historically the small business sector produces about half the private GDP and employs half of the private sector workforce. During the recovery, this sector did not pull its historic weight, slowing the recovery in employment substantially. In the boom, not only were too many houses built but too many firms were started, and filled with inventories to satisfy consumer spending driven by a 2 percent saving rate. Huge numbers of firms and their jobs were lost in the recession, nearly 900,000 establishments in each of the years 2008 and 2009. The NFIB data suggest that the surviving firms are regaining stride and the BLS data now show more starts than terminations, supporting job growth.
NFIB indicators of job creation have anticipated the relatively more favorable numbers reported by BLS. Owners are finding reasons to hire even though the “macro” indicators are not showing a lot of growth. Labor markets are tightening as the percent of owners reporting unfilled openings (BLS) has risen significantly and is now the highest reading since 2001. And the percent of owners citing the availability of qualified workers as their top business problem is at the highest level since December 2007, just ahead of the peak in employment in that expansion. There are fundamental domestic economic currents leading owners to add workers and these should bubble up in the official statistics and support stronger growth in domestic output.
Posted: March 10, 2015 Tuesday 07:30 AM