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Small Business Optimism Getting Worse!

Written by Lance Roberts | Jan, 10, 2013

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The month of April marked a second consecutive month of decline in small-business optimism; NFIB’s index dropped to 91.2 in April – a much smaller dip than the previous month, but still another sign of the nation’s anemic economic recovery. While reports of net jobs created by small firms stayed positive, the numbers posted did not match the surprising gains cited in last week’s Labor Department report – of course, this is not really a surprise when you consider that 179,000 of the jobs created in the recent report were from the Birth/Death Adjustment which is an attempt at guessing what small business is actually doing.  This report tells you what they are actually doing.   Maybe the NFIB should get together with the BLS and that might just be a little less BS in the BLS report – however, I digress.

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“While it’s too early to say that a trend has emerged, a second consecutive month of decline in small-business optimism does very little to encourage further confidence in a strong economic recovery,” said NFIB Chief Economist Bill Dunkelberg. “Owners simply find no reason to be optimistic about the future and therefore they find no reason to pick up the pace of spending and hiring. It’s difficult to know exactly why the outlook for small firms is in decline; but it’s a safe bet that political and economic uncertainty—about the deficit, the threat of inflation, rising energy and health care costs—are at top of the mind for most small-business owners. Who is going to stay positive in this turbulent political environment?”

While Bill doesn’t want to readily admit it – he hit the nail right on the head.    While this report may suggest that some of the hiring is being done by larger firms like McDonalds recent hires of 65,000 burger flippers – small businesses on Main Street—the ones traditionally responsible for leading the country out of recessions, are still struggling to find reasons to hire.  As you can see in the attached chart the number of firms reporting that “Poor Sales” is their primary concern is still at levels normally associated with recessionary conditions. Likewise, the number of firms reporting that this is a “Good Time To Expand” likewise is near historically low levels where recessions are normally associated.   As we have stated in the past as long at that gap remains wide there is no incentive for small businesses to take the risk in hiring or to increase leverage on the expectation for future growth.

As we stated in our recent newsletter on inflation in the U.S. the velocity of money is at historically low levels NOT because banks are not willing to lend, they are, it is that small businesses and individuals are more in the process of trying to deleverage their balance sheets and don’t want to increase debt levels even at very low interest rates.  This is the fly in the ointment for the Administration even as Paul Krugman decries that the way to fix America is by creating jobs.   There is no easy fix to what ails the American economy. It isn’t something that you can paper over with accounting gimmicks, fix with regular doses of steroidal fiscal injections, raising taxes or imposing regulatory constraints or ignoring the $14 Trillion gorilla standing in the corner.    Balance sheet recessions are altogether different than normal economic recessionary cycles.  Until small business owners can see a clearer future ahead, improving sales over cost cutting profitability, input costs coming under control and the implied threats and bickering out of Washington and the Administration over the various fiscal issues give way to a concerted effort to correct the issues – small businesses are likely to remain hunkered down for the longer term.

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