The National Federation of Independent Business (NFIB) released their monthly survey for April today. The good news is that the index increased 2 points this month to 94.5 from March’s reading of 92.5. The bad news is that the index is exactly where it was in February of last year and still at levels well entrenched in a normal recessionary environment. As stated in the release this really isn’t much a surprise “since nothing much happened during that time [last 12 months] that would make owners more optimistic about the future.”
In the last month attitudes about making plans to increase employment, make capital outlays and expected credit conditions all improved. However, on the negative side was a decrease in the expectations for real sales to move higher, a reduction in inventories and no plans to increase future inventories or plans to expand current businesses.
One of the key measures that we focus on when looking at the report is “poor sales” as a main concern of businesses. This concern has a very high correlation with employment. If a company is concered about top line sales their attitude toward adding more employees will remain negative. The drop in concern about “poor sales” does provide some hope about employment in the future, however, as we stated in yesterday’s economic roundup, employment is a lagging indicator as companies are the last to “hire” and the last to “fire.” From the report: “…some job creation is occurring, although a lot of it will be ‘below the radar’ of government statistics for a while.”
One of the more interesting dichotomies of the report was the current view of the sales and increasing employment compared to the continued malaise in “expectations of economic improvements in the next 6 months.” That negative attitude towards the economy aligns with the still weak plans to make capital expenditures as well. The important point is that corporate investment is a key to a sustainable economic recovery. However, like the index as a whole, these components are likewise still mired at levels associated with recessionary outlooks.
The report showed that: “…the frequency of reported capital outlays over the past six months rose 2 points to 54 percent, nothing to write home about. The record low of 44 percent was reached most recently in August 2010, so spending rates are 10 points ahead of that. But in 2007, an average of 60 percent reported making capital outlays. So, it appears that spending remains more in ‘maintenance’ than in ‘expansion’ mode.”
With only 7 percent of those surveyed stating this is a good time to expand facility and the net percentage of owners expecting better business conditions in six months at a negative 5 percent it does not bode well for a robustly expanding economy nor is the outlook conducive to much new spending or hiring. The concluding points from the report, which are never reported by the mainstream media looking for a headline, were most telling:
“Looking at the larger economic picture, there isn’t much reason for owners to become optimistic, the stock market is good, but the economy is bifurcated. The big tech, manufacturing and agriculture firms are doing very well as profits are at a record level. But that has not been the case on Main Street.
Washington clearly is not going to address our fiscal imbalances and uncertainty is huge, about taxes, health care, new rules to help unions, energy prices, regulations and the election outcome. The Federal Reserve has taken policy into territory for which no maps exist; it’s not clear where its policies will take us. Developments in Europe only magnify fears that there is another “adjustment” ahead that will be as disruptive as the one we just went through. Consumer and owner confidence in government policies is at historic lows. Whatever discretionary spending consumers and owners might do is still being deferred where possible. Owners are betting their own money and are looking for better odds before putting money on the table.”
However, here is the key statement from the report: “Most likely, there will be little improvement on Main Street in optimism or hiring and spending this year.”
Those are not the sentiments from the sector of the economy that creates over 70% of all jobs that promise continued growth and economic prosperity. The current economy continues to be one of statistical recovery while Main Street remains mired in recessionary attitudes.