NFIB Small Business Optimism Index Tumbles in October During the Government Shutdown

Here is information from the press release and a historical chart of the NFIB Small Business Optimism Index. According to NFIB chief economist Bill Dunkelberg, "the average value of the Index since the recovery started is 91—8 points below the thirty-five year average through 2007."

It's interesting that small business optimism didn't plunge to a new record low during the great recession and financial crisis. During the 1980-1982 recession, the "Index fell to its all-time low of 80.1" and then spiked to about 110 in the next 3-4 years (chart below). But during the 2007-2009 great recession, the Index hit a low of 81 in 2009 and it still hasn't seen 95 four years into the recovery. So I wonder if the NFIB Small Business Optimism Index will make a new low during the next recession.

October Small Business Optimism Takes a Tumble

WASHINGTON, November 12, 2013 – Fall arrived literally this month, as small-business optimism dropped from 93.9 to 91.6, largely due to a precipitous decline in hiring plans and expectations for future small-business conditions. Of the ten Index components, seven turned negative, falling a total of 27 percentage points. The stalemate in early October over funding the government as well as the failed “launch” of the Obamacare website left 68 percent of owners feeling that the current period is a bad time to expand; 37 percent of those owners identified the political climate in Washington as the culprit—a record high level.

“Washington paralysis is never good news for the economy, so it was no surprise that while politicians were arguing over whether or not the government should remain fully operational, small-business optimism measures deteriorated,” said NFIB chief economist Bill Dunkelberg. “Small employers are not fooled by headlines announcing record high stock market indices; everyday they live the economic realities of overregulation, increased taxes, weak sales and a government without any direction or plan for the future. The average value of the Index since the recovery started is 91—8 points below the thirty-five year average through 2007 and well below readings typically experienced in a recovery. The new budget deadline of January 15, 2014 is approaching quickly and Congress continues to wrangle over the disastrous healthcare law and little else. We shouldn’t expect skies to turn blue anytime soon.”

Source: NFIB

Survey participants had a gloomy outlook on sales and inventories:

The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past 3 months compared to the prior three months deteriorated 2 points to a negative 8 percent. Seventeen percent still cite weak sales as their top business problem. The net percent of owners expecting higher real sales volumes fell 6 points to 2% of all owners (seasonally adjusted). Not much help for hiring or inventory investment in those numbers.

The pace of inventory reduction continued, with a net negative 6% of all owners reporting growth in inventories (seasonally adjusted), 1 point better than September. The net percent of owners planning to add to inventory stocks was  a net negative 1 percent. The negative outlook for the economy and real sales prospects adversely impacted inventory satisfaction. The net percent of owners viewing current stocks as too low fell to a net negative 5%, the worst reading since 2011.

Read the full report here (h/t @SoberLook).

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