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NFIB Small Business Optimism Index gained 0.1 points to 93.9
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The Index of Small Business Optimism gained 0.1 points, to 93.9, so basically unchanged from December. Index readings from January and February 2011 were higher, so we are still below where we were a year ago even though the Index has risen five months in a row. Except for January and February of 2011, the current Index is the highest reading since December 2007 when the economy peaked. But, in spite of the progress made in the past few months, the fact is that it still remains at recession level readings.
From the perspective of NFIB owners, 2011 was a flat year at best. The Index of Small Business Optimism stood at 94.1 in January 2011 and 93.9 in January 2012, after dipping as low as 88.1 in August of 2011. The best that can be said is that the year ended on an upbeat note, with 5 months of improvement if January’s 0.1 gain is regarded as an improvement. For perspective, the Index stood at 94.6 in December 2007 as the economy slipped into recession.
The prospects for resolving the major uncertainties facing small business owners in 2012 are low. Government spending surges ahead, undisciplined without a federal budget for over 1,000 days which is no way to run the largest “business” in the world, USA, Inc. Tax issues remain unresolved and spending issues unaddressed. In the meantime, the President moves ahead, using executive orders to implement policies that many believe are the responsibility of Congress.
The Federal Reserve Bank officially announced an inflation target, setting a goal for one of its twin policy mandates. The inflation rate target will be 2 percent as measured by the Personal Consumption Deflator. It was a surprise to many that it did not choose the “core” PCE inflation rate which excludes volatile food and energy prices. Headline inflation rates are more volatile, leaving a question as to how much “volatility” in policy might be required to deal with energy price swings. Since no other details were made available, many important questions go unanswered. It is important to know over what period of time the Federal Reserve must hit the 2 percent target, what the “penalty” is for failing to do so, and how policy directed at “price stability” will be impacted by an unspecified unemployment rate objective.
We are a long way from what most observers would accept as a reasonable level of the unemployment rate, so how far above the 2 percent inflation target will the Federal Reserve go in an attempt to lower unemployment. If they specify a time period over which the 2 percent inflation target is to be met, but as we near the end of that period, inflation is well above the target, must the Federal Reserve “hammer” the economy to meet it? Currently, the PCE inflation rate is above the 2 percent target, so tightening would be the order of the day – except that the unemployment rate is 8.3 percent, well above the secret unemployment rate target, which begs for more monetary expansion, a QE3. Go figure, that’s what everyone is doing.
So, overall, the January NFIB survey indicates that the economy will continue to crawl along at a sub-par pace. There appears to be no pressure on prices at the core level, energy is the wild card. Wage growth is picking up, but slowly. The net increase in jobs of “0” is not promising for job creation nor was the decline in the net percent of owners planning job creation. The increase in the percent of owners with hard to fill job openings does indicate that job markets are tightening somewhere, and correctly anticipated a decline in the unemployment rate. There was no exuberance in capital spending, but the improved levels reached at the end of 2011 held up. So, “muddle through” seems to best characterize the first half of the year. Too much uncertainty with little prospect of much resolution.
Posted: February 14, 2012 Tuesday 07:30 AM