Research >> Economics
NFIB Small Business Optimism Index gained 2.0 points to 98.1
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The Small Business Optimism Index gained 2.0 points, taking the Index to its highest level since February 2007. The average of the Index from 1974Q4 to 2014 to date is 98, which includes all the Great Recession readings. What didn’t improve were the four “hard” Index components: job creation plans, plans for capital outlays, job openings and inventory investment plans, together adding a negative 1 percentage point to the Index. The entire gain in the Index was accounted for by two components: Expectations for Business Conditions in Six Months and Expectations for Real Sales Volumes, adding a combined 21 percentage points to net favorable responses, perhaps a response to the November election results.
Last month, we asked if the election outcome would matter to small business owners, planning to look for evidence in the November survey results which are mailed in over the entire month. It clearly had no impact on hiring and spending plans, these were unchanged from October numbers. But expectations did improve, with a 16 percentage point gain in expectations for better business conditions in 6 months and a 5 point gain in expectations for higher real sales in the coming months, likely not a response to “Black Friday” or “Small Business Saturday” results.
Responses to the question “Is now a good time to expand your business substantially?” might also be a result of election euphoria. The percent responding NO fell 5 percentage points to 53 percent, nice, but not the lowest reading in 2014. However, the percent of those saying NO and blaming the “political climate” fell from 28 percent of those who said NO to 19 percent, a significant decline and the lowest since January, 2012. The high reading was 37 percent in October, 2013. So it appears likely that the election outcome played a significant role in improving the Index of Small Business Optimism, but only two of the ten Index components appeared to be impacted. What is needed is a translation of this optimism into spending and hiring.
Third quarter real GDP growth was revised up to 3.9 percent making the 6 months in the middle of 2014 one of the best growth periods in decades. However, this didn’t do much for small business job creation in the U.S. One reason is that a lot of this growth has been driven by inventory building, unusual defense outlays and exports, selling around the world, an activity that doesn’t involve many small businesses. Expectations for growth in the fourth quarter are not as rosy, reverting to the high 2 percent pace.
A new round of healthcare events will impact business owners in the coming months and consumers will find that their out of pocket outlays for healthcare will be rising because their policies have high deductibles. Just what impact this will have on spending remains to be seen.
Posted: December 9, 2014 Tuesday 07:30 AM