Research >> Economics
NFIB Small Business Optimism Index dropped to 91.2
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The Small Business Optimism Index fell 0.7 points in April to 91.2, not much but still a disappointing outcome following the March decline. After last month’s larger decline, this month is more akin to an “after shock”. Thankfully, the labor market components did not decline further, although net job creation weakened. Also, fewer reported adverse profit trends and reports of positive sales trends were still less frequent than reports of quarterly declines, but the best reading since December 2007, the peak of the last expansion.
The “get up and go” usually present in the small business sector after a recession “got up and went” somewhere. For the small business sector, this is the worst recovery on record. The recovery in the small business indicators looks especially anemic in comparison to the recovery after the 1980-82 recession period, the era with a depth most comparable to our most recent experience. The explanation for this is murky and complex, driven by the “seeds of destruction” planted in the 2003-07 expansion. When stock market bubbles burst, winners and losers are quickly identified and the economy moves on as the redistribution in wealth is efficiently imposed by the market. This time around, the process of declaring winners and losers is impeded by the complications of mortgage finance concocted by the financial market and the efforts of the government to prevent the redistribution required.
Houses are more widely held than stocks and the crash has impacted many more people and reached far down the income distribution, impacting attitudes as well as the ability to spend. Savers’ incomes have been impaired by the Fed’s low rate policies. The over-supply of houses, business facilities and inventory weigh heavily on new construction and until recently, production. Although much lower, the ratio of consumer debt to income is still high, families not actually in foreclosure are still saddled with high mortgage payments. And then there’s Washington. Enough said, not enough room to detail the detrimental impact of the uncertainty created by “leadership” there.
Unemployment remains high because in the boom, employment was too high and especially in construction where excessive levels of employees created such high output that it impeded their re-employment in the recovery. The much vaunted “risk managers” at financial institutions failed, and their institutions would have as well had they not been “bailed out”. Owners report that inventories are now in balance with expected sales, but these expectations are muted, providing little reason to hire more workers.
Capital spending remains low because the prospects of generating the additional sales needed to pay off loans used to finance expansion are not good. Selling prices are rising sharply not because costs are rising but because the “fire sale” needed to bring inventories and excess retail capacity into balance is about over. New construction and services are labor intensive and dominated by small firms. Spending must recover here to get employment up and running. Maybe after consumers are through buying cars they will get their nails done.
Posted: May 10, 2011 Tuesday 07:45 AM