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Small Business Sentiment: April Continued to be Gloomy

May 10, 2011

The latest issue of the NFIB Small Business Economic Trends is out today (see report). In recent months the closely watched Small Business Optimism Index had been trying to break above recessionary levels. The March report was a disappointing setback, and the April report, released this morning, again moved in the wrong direction.

Here is the opening paragraph (bolded text in the original):

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. This suggests that the bulk of new hiring is happening in larger firms and the smaller counterparts on Main Street — the ones traditionally responsible for leading the country out of recessions, are still struggling to hire.

“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?”

The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings of the past three years. The NBER declared June 2009 as the official end of the last recession, but the recession mentality still pervades the small business community.

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Inventories and Sales Still a Net Negative

Elsewhere in the report we learn that “The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months did improve by 7 percentage point to a net negative 5 percent, the best reading in 40 months. But consumer sentiment is stuck in the mud as gas and food prices continue to rise, and many consumers still suffer from heavy debt and mortgage payments which depress their spending. The net percent of owners expecting higher real sales fell 1 point to a net 5 percent of all owners (seasonally adjusted), 8 points below January’s reading. This is bad news for hiring and inventory investment.”

Business Optimism and Consumer Confidence

The next chart is an overlay of the Business Optimism Index and the Conference Board Consumer Confidence Index. The consumer measure is the more volatile of the two, so I’ve plotted it on a separate axis to give a better comparison of the volatility from the common baseline of 100.

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As the chart illustrates, both indexes are currently below their respective levels at the onset of the Great Recession.

View the original article on dhsort.com

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