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NFIB Small Business Optimism Index increased 0.1 points in July to 94.6
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The Index of Small Business Optimism increased 0.1 points to 94.6, still well below the 40 year average of 98. Four of the 10 Index components posted a gain, four declined and two were unchanged. GDP growth in the last three quarters has averaged 1 percent, not a recession but only matching the growth in the population. The outlook for business conditions six months from the current period continued to improve, gaining 16 percentage points since January but still in negative territory – more owners expecting deterioration than improvement. Only 8 percent (seasonally adjusted) view the current period as favorable for business expansion, the average for this recovery but well below the 17 percent average for 2000-2007.
After seven years of “recovery” which hasn’t turned out to be much of one, real GDP posted three quarters of growth averaging 1 percent, dragging down the average of 2.1 percent growth for the recovery period. Compare this to 4.5 percent for the 1983 recovery. At the tail end of this recovery, there are 5 million more food stamp recipients than at the start of the Obama administration. There are 10 million more people on Medicaid. The “work” requirement in the 1996 welfare reform legislation that worked well has been eliminated, perhaps explaining why so many owners with job openings for low skilled workers can’t find qualified applicants, welfare competes with actually taking a job. If this is where the “recovery” ends, it will certainly be a sad performance.
Consumer sentiment went down (University of Michigan) but the most recent retail sales figures were promising, with better than 4 percent growth. Consumer spending is critically important to small businesses. Ford doesn’t sell cars, small business owners do and sales have recently been at a very high pace. It appears that the consumer is totally responsible for second quarter growth and appears poised to keep spending in Q3. However there is little hope of a good growth year at this point, as the business sector does not seem anxious to do a lot of investment spending or hiring. Small business owners remain in “maintenance mode”. A record high percentage of owners cited “the political climate” as the major reason for viewing the current period as a bad time to expand. The surge in consumer spending was met by drawing down inventories, taking a point off of GDP growth. A rebuild of inventories was not apparent in the NFIB numbers but if it happens, Q3 growth will get a boost. Overall, growth will likely resume its 2 percent pace.
Posted: August 9, 2016 Tuesday 07:00 AM