Small Business Optimism Index Remains at Recessionary Level--NFIB

If you want to see how the real economy is doing, look not further than the NFIB's small business optimism index. While the index rose 0.2 pts to 89 in September, this depressed level is consistent with a recession not an expansion. The number has been below 93 since Jan 2008 and reveals how negative small businesses are on the economy. And QE 2 is not going to change the situation. From the NFIB:


The Index of Small Business Optimism gained 0.2 points in September, rising to 89.0. The increase is certainly not a significant move, but at least it did not fall. Still, the Index remains in recession territory. The downturn may be officially over, but small business owners have for the most part seen no evidence of it.


Eleven percent (seasonally adjusted) reported unfilled job openings, unchanged from August and historically very weak. Over the next three months, eight percent plan to increase employment (unchanged), and 16 percent plan to reduce their workforce (up three points), yielding a seasonally adjusted net negative three percent of owners planning to create new jobs, down four points from August, The decline in hiring plans is an unexpected reversal in job creation prospects. Hiring plans continue to underperform the recoveries following previous recessions.


The environment for capital spending is not good. The frequency of reported capital outlays over the past six months rose one point to 45 percent of all firms, one point above the 35 year record low. Six percent characterized the current period as a good time to expand facilities, up two points, but historically low. A net negative three percent expect business conditions to improve over the next six months, a five point improvement from August, but still more owners expect the economy to weaken than strengthen.


A net-negative 33 percent of owners reported positive profit trends, deteriorated three points in September and 29 points worse than the best expansion reading reached in 2005. The persistence of this imbalance is bad news for the small business community. Profits are important for the support of capital spending and expansion. Not seasonally adjusted, 16 percent reported profits higher (down two points), but 45 percent reported profits falling, a three point increase.

The NFIB is very critical of the the Fed's imminent QE 2 program. They note that money printing does nothing to help the real economy. The Fed lies and says it is printing money to "save" the economy, but the real economy (represented by small businesses) does not want QE.  
Buying more Treasury securities may push rates even lower, but to what end? The impact on home sales will surely be minimal. With mortgage rates at record low levels already, even lower rates are unlikely to invite new entrants to the market. Of course, there may be other “agendas” such as a weakening of the dollar and support for asset prices. This is very dangerous as hundreds of billions of dollars are being “allocated” based on false prices (interest rates). The charade can’t be maintained forever and weakening the dollar only invites others to join the party.

Black Swan Insights


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