November 2015 NFIB Report

Bill Dunkelberg

In this “Season of Hope”, small business owners are finding little to be hopeful or optimistic about including the economy in the New Year.Society is showing stress fractures all around, on college campuses, mass shootings, terrorist attacks, major cities and their police forces, scandals and incompetence rampant in D.C., a Justice Department politicized, a political IRS and EPA running roughshod over individual rights and personal freedom, a Fed that can’t make up its mind about 0 interest rates “for too long”, a Congress that can’t seem to stay in the “power ring” with the President for a round, a President who thinks that our most important problem and threat is climate change (formally known asglobal warming) and is willing to punish the current economy for inconsequential benefits in the future just to set an example for the world (right!). It feels like we are starting to “lose it”, to dissemble.

Well, the news isn’t all bad. The stock and bond markets are at record high levels. Unfortunately that means the downside risk is HUGE! The dollar is strong and we are doing much better than most countries around the world.OK, that’s good, relatively speaking. The current NFIB survey reads are generally the best in this expansion, although historically below average in the 42 year history of expansions. The 1983-90 expansion created 689,000 jobs per quarter compared to 439,000 in this expansion, 2009Q3 to the present – all that with a 30 percent smaller labor force back then. Of course, the economic policies in place under Reagan (like “tax cuts”) were very different than those of the current Administration.That might have made a difference.

Overall, the outlook remains about the same, slow 2 percent-ish growth, payroll employment growth averaging around 200,000 a month, 100,000 in the Household Survey (enough to keep the unemployment rate around 5 percent), not much pressure on prices from Main Street. Just hoping for a Happy New Year to show up.


The Index of Small Business Optimism fell 1.3 points in November, dropping the Index to 94.8, this after three months of no change of any significance. Clearly the small business sector has no expansion energy.Still well below the 42 year average, the Index continues to signal a “plodding” economy, responding to population growth and a growing replacement need as the capital stock ages. Auto sales remain strong, sold and serviced by small businesses, but produced by large manufacturers. The services sector has been showing more life, a small business domain, while manufacturing has faded. Overall, going nowhere and not quickly.Growth in the fourth quarter is likely to come in between 2% and 2.5%.


Fifty-five percent reported hiring or trying to hire (unchanged), but 47 percent reported few or no qualified applicants for the positions they were trying to fill. Sixteen percent reported using temporary workers, up 2 points. Twenty-seven percent of all owners reported job openings they could not fill in the current period, unchanged over the past 2 months. This is a solid reading historically and suggests no significant change in the unemployment rate. A seasonally adjusted net 11 percent plan to create new jobs, unchanged. A seasonally adjusted net 23 percent of owners reported raising worker compensation, up 2 points and at an expansion high. The net percent planning to increase compensation rose 3 points to a net 20 percent, historically strong for this recovery.


The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past 3 months compared to the prior 3 months improved 3 percentage points to a net negative 5 percent.This is an “improvement” only in an economy that is delivering a sub-par performance.Nine percent cited weak sales as their top business problem, down 3 points. Overall, the direction of these changes is positive, but they are insufficient to really change the picture. Expected real sales volumes posted a 5 point decline, falling to a seasonally adjusted net negative 1 percent of owners expecting gains, a long way down from the 20 percent reading in December 2014.

The net percent of owners reporting inventory increases was a net negative 3 percent (seasonally adjusted), down 1 point. The net percent of owners viewing current inventory stocks as “too low” lost 2 points, fall to a net negative 6 percent, as weak sales expectations made current stocks look excessive and future sales are not expected to grow much. The net percent of owners planning to add to inventory was unchanged at a net 0 percent, not much help for Q4 GDP growth.With weak expectations for sales and business conditions, prospects for strong inventory investment are poor.


Sixty-two percent reported capital outlays, up 4 percentage points from November. Overall, capital spending was much stronger in November, perhaps anticipating Congress’ passage of expensing and other tax extenders. The percent of owners planning capital outlays in the next 3 to 6 months fell 1 point to 25 percent, not a strong reading historically but among the best in this expansion. Seasonally adjusted, the net percent expecting better business conditions deteriorated 3 points to a net negative 7 percent, a rather negative outlook for an “expansion”. The seasonally adjusted net percent expecting higher real sales fell 5 points to a net negative 1 percent of all owners.Owner expectations for the economy overall appear to anticipate a continuation of “under-performance”.


Seasonally adjusted, the net percent of owners raising selling prices was 3 percent, up 1 point from October. This is bad news for the Federal Reserve which is trying to stoke the flames of inflation, while for consumers, the news is good. Twenty-three percent plan on raising average prices in the next few months (up 6 points). percent plan reductions (unchanged), far fewer than actually reported reductions in past prices. Seasonally adjusted, a net 17 percent plan price hikes (up 3 points). If history repeats, this will be offset by unplanned reductions in selling prices.


Earnings trends deteriorated 3 points, falling to a negative 19 percent reporting quarter on quarter profit improvements.Far more owners are reporting profits lower quarter to quarter than higher. A seasonally adjusted net 23 percent of owners reported raising worker compensation, up 2 points and at an expansion high. The net percent planning to increase compensation rose three points to a net 20 percent, historically strong for this recovery. However, it is not clear how increased comp is divided between take home wages and rising benefits.


Three percent of owners reported that all their borrowing needs were not satisfied, 1 point above the record low reached in September. Thirty-two percent reported all credit needs met (up 2 points), and 52 percent explicitly said they did not want a loan. Only 2 percent reported that financing was their top business problem. Twenty-seven percent of all owners reported borrowing on a regular basis, down 1 point. The average rate paid on short maturity loans fell 40 basis points to 4.7 percent. Loan demand remains historically weak, owners can’t find many good reasons to borrow to invest when expectations for growth are not very positive. The net percent of owners expecting credit conditions to ease in the coming months was a negative 4 percent, a 1 point improvement.



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