NFIB: String Of Improvements End

In the last review of the National Federation of Independent Businesses survey, I discussed the overall subdued levels of optimism by small business owners.

“The December report showed that small business optimism did end the year slightly higher than November coming in at 93.9.  Unfortunately, this is still well below the previous 3 mid-year readings of over 94 and 6 points below the pre-recession average.“

The survey for February brought the string of recent improvements to an end as the overall index fell by 2.7 points to 91.4.  There really wasn’t much on the positive side of the ledger this month as plans to increase capital outlays improved only by 1 point and plans to raise worker compensation increased by 3 to 14%.  Unfortunately, employment fell by 5 points to 7% while plans to increase inventories shrank by 2 to -5%.  Small business owners expecting economic improvement retreated by 8 to -19% as expectations of higher real sales plummeted by 12 to 3%.  Lastly, those owners thinking this is a “good time to expand” fell by 2 to 6%.

Bill Dunkleberg, Chief Economist of the NFIB noted: 

“”Small business optimism continues its winter hibernation with the latest Index dropping 2.7 points to 91.4, a reading that historically has been associated with recessions and periods of sub-par growth. The one highlight in the January survey, a surge in hiring plans, was crushed in February by the continued onslaught of a wintry recovery now in its 5th year.

As shown in the chart above, the small business confidence index retreated sharply from levels that have proved to be stubborn resistance.  While it is likely that many will blame the recent streak of cold weather for the decline, the fact that the survey remains at levels normally associated with recessions is something entirely more worrisome.

Furthermore, the issue of sales expectations versus actual sales continues to be a key issue.  With each passing month, there has been significant “hope” that consumer demand is going to pick up in the near future.  However, actual sales have failed to occur.  The chart below shows the historical relationship of expected sales over the next quarter versus what actually happened in the past quarter.  Last month, I discussed that the current divergence was quite extreme.