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NFIB Small Business Optimism Index fell 2.7 points to 91.4
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The Small Business Optimism Index fell 2.7 points to 91.4, a substantial reversal in an unexciting January measure but ends a 3 month improvement trend. Only one of the Index components improved, three were unchanged, and six were lower, indicating that the small business half of the economy is still adding little to growth beyond that needed to support population growth. The substantial decline in the Index is consistent with the prospect that GDP growth will remain in the mid 2 percent range barring some exceptional good news, unlikely in this election year.
The one “green shoot” in the January survey, a surge in hiring plans, was crushed by the continued onslaught of a wintry recovery now in its 5th year. The February report on net new jobs was better than expected, but inadequate to the task of reducing the unemployment rate which rose a tenth of a point. As disturbing as the decline in job creation plans was, the plunge in expectations for improvements in real sales in the coming months and for business conditions 6 months from now, undoubtedly the reason for the decline in hiring plans. Averaging 22 percent from 1973 through 2007, a net 22 percent expected real sales volumes to rise in the following 3 month period. In February, it was a meager net 3 percent.
Uncertainty is a major cause of the reluctance to spend and hire. Large firms are loaded with cash but unwilling to spend. For small firms, record low numbers are reporting the current period as a good time to expand, for 5 years and running. More firms are reducing inventory than adding to it, even in a growing economy. And more firms are expecting a deterioration in the economy than an improvement. In NFIB’s Problems and Priorities survey, uncertainty about the economy and government policy both rank in the top 5 most severe problems facing small business owners. You don’t bet your money on a future you cannot see clearly.
The Federal Reserve now holds more government bonds than either Japan or China and remains the major buyer of mortgage securities. In the “olden days” banks made mortgages, lending out depositors money to credit worthy home buyers. Now the regulatory cost of making mortgages is so large that only a few big banks will do it. Regulators no longer allow banks to lend for 30 years and finance with short-term deposits. This risk is dumped onto the taxpayer.
The economy is not doing well and little is happening in Washington that would lead owners to think otherwise. Even the Federal Reserve’s guidance is for a weak economy, that’s what owners read and they are the experts (and policy makers). All policy is focused on the election, pandering to special interests, not the interests of the “middle class” (most of us) which simply wants to see better economic growth and serious job creation (along with improving compensation). Consumer sentiment is equally morose for this stage of a “recovery”. Only 1 in 10 consumers think government policy is good. The IRS is still taking the 5th and the DOJ investigator sends campaign money to the Democrat party. None of the “issues” are resolved; those involved hoping to stall long enough for other crises to shove them off the front pages - maybe Putin will save them. But the stock market is hitting new highs so I guess we should all cheer.
Posted: March 11, 2014 Tuesday 07:30 AM