Tag: NFIB Small Business Optimism Index

Monday Economic Report – April 14, 2014

Here is a summary of this week’s Monday Economic Report:

In the minutes of its March Federal Open Market Committee (FOMC) meeting, the Federal Reserve Board highlighted the negative impact of weather events on first-quarter growth. Winter storms hampered business investment, construction, consumer spending and manufacturing production. Nonetheless, the Federal Reserve still anticipates real GDP growth of between 2.8 and 3.0 percent in 2014, faster than last year’s 1.9 percent expansion. While this reflects a slight downgrade in the outlook for the year from the last forecast, it continues to suggest that the economy will regain its momentum moving forward. The Federal Reserve also predicts growth of 3.0 to 3.2 percent in 2015. The International Monetary Fund’s World Economic Outlook, which was released last week, mirrors these figures in its own forecasts for the United States.

The highlight of the FOMC minutes was the background discussion among participants regarding future monetary policy actions. The Federal Reserve largely feels that the U.S. labor market has a lot of “slack” in it, which is not reflected by the 6.7 percent unemployment rate. Despite improvements in the unemployment rate, weaknesses continue, with the participation rate near 30-year lows and high rates of both underemployment and part-time employment. While some FOMC members feel there has been sufficient economic progress to warrant less stimulative monetary policy measures, the majority view the current labor market as sufficiently weak enough to continue the Federal Reserve’s highly accommodative actions for the foreseeable future. The Federal Reserve will continue to reduce its long-term asset purchases, but short-term interest rates will likely not rise until next year at the earliest. Inflationary pressures remain modest, providing the Federal Reserve with some wiggle room to do its stimulative measures.

The most recent Job Openings and Labor Turnover Survey (JOLTS) data suggest the labor market for manufacturers remains soft. The number of manufacturing job openings declined for the third month in a row in February. Postings have been lower since peaking in November, and the December to February time frame mirrored the weather-related weaknesses seen in other data. Net hiring was also lower in those three months, with 2,000 more separations than hires in February. Still, the manufacturing sector has added an average of 12,125 workers each month since August, mirroring the uptick in demand and production that we have seen since that point. We are hopeful that hiring begins to accelerate again in the coming months.

Looking at the sentiment surveys last week, businesses and consumers were more upbeat. The California Manufacturing Survey from Chapman University reported rising expectations for new orders and production for the second quarter, but with employment growth remaining soft. Both durable and nondurable goods activity were anticipated to expand modestly in the current quarter. Likewise, small business owners in the National Federation of Independent Business’ (NFIB) survey were more optimistic about future sales, and those saying the next three months were a good time to expand edged marginally higher. Still, earnings remained weak, and the percentage suggesting they would bring on more workers moved lower. The University of Michigan and Thomson Reuters also noted improved consumer sentiment, a welcome gain after three months of dampened enthusiasm.

This week will be a busy one on the economic front, specifically with new reports on housing starts and industrial production. We hope to move beyond the weather-related weaknesses from earlier this year, and March’s manufacturing output numbers are expected to show a continued rebound. Similarly, housing starts moved slightly higher in February, but permits surpassed the 1 million mark for the first time since November; yet, rising interest rates, financial challenges for potential buyers and low inventory remain concerns. Other highlights this week include new data on consumer prices, leading indicators, manufacturing surveys from the New York and Philadelphia Federal Reserve Banks and state employment.

Chad Moutray is the chief economist, National Association of Manufacturers. Note that General Electric Chief Economist Marco Annunziata will prepare the Monday Economic Report for April 21.

participation rate - apr2014

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Small Business Confidence in March Recovered Some of its February Decline

The National Federation of Independent Business (NFIB) said that small business confidence in March recovered some of its February decline. The Small Business Optimism Index increased from 91.4 in February to 93.4 in March, but it had fallen from 94.1 in January. Sentiment among small firm owners has generally moved higher over the course of the past year, with quite a bit of volatility. For instance, just over the past six months, the Index has ranged from 91.6 to 94.1, with the government shutdown, weather and persistent uncertainties dampening optimism at times.

Despite the higher headline figure, the underlying data were largely mixed. On the positive side, the percentage of firms saying that the next three months were a “good time to expand” increased from 6 percent to 8 percent, returning it to the level recorded in January but still below December (10 percent). Of those saying that it was not the right time for expansion, the economy was the primary reason.

Still, “poor sales” – a proxy for the current economy – was not listed as the “single most important problem.” Instead, the top concern was a tie between taxes and “red tape,” with each cited by 21 percent of respondents. This was followed by poor sales (14 percent), the cost of insurance (10 percent), and the quality of labor (9 percent). Indeed, the net percentage of respondents saying that they expect higher sales in the next three months rose from 3 percent to 12 percent, reflecting a pickup in sentiment.

Nonetheless, earnings figures remain weak overall, and the employment and capital spending data were less positive. Small business owners said that the hiring slightly declined in March, with the net percentage planning to bring on new workers in the next three months down from 12 percent in January to 7 percent in February to 5 percent in March. Hopefully, the uptick in optimism on sales will reverse this trend in the coming months. Meanwhile, capital spending has edged marginally lower, with capital expenditure plans essentially unchanged so far this year.

Chad Moutray is the chief economist, National Association of Manufacturers.

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Monday Economic Report – March 17, 2014

Here is the summary for this week’s Monday Economic Report:

Recent events around the world remind us that the global economic and political environment remains uncertain. Manufacturers have had to cope with weather-related softness over the past few months, worries about the geopolitical situation and slowing growth rates in some of our largest trading partners, specifically China. Despite these challenges, they continue to be mostly upbeat about future activity.

The latest NAM/IndustryWeek Survey of Manufacturers found that 86.1 percent of respondents were positive about their company’s outlook, up from 78.1 percent three months ago, with increased expectations for sales, exports, employment and capital spending. Still, smaller manufacturers were less positive, particularly in their investment plans. The top challenges were the business climate and rising health care and insurance costs, with respondents noting the need for comprehensive tax reform and expressing concern about ever-increasing regulatory burdens.

Government regulations were also cited as the most important problem in the latest National Federation of Independent Business (NFIB) survey of small business owners. It was one of two sentiment surveys released last week showing reduced confidence. NFIB’s Small Business Optimism Index fell sharply, down from 94.1 in January to 91.4 in February. The percentage saying it was a good time to expand declined, with weak sales and earnings expectations. Likewise, preliminary March consumer confidence numbers from the University of Michigan and Thomson Reuters were also lower, perhaps reflecting concerns about job and income growth.

On the positive side, retail sales began to rebound in February, up 0.3 percent. While this was not enough to make up for the weather-induced declines of December and January, it did suggest there were possible “green shoots” on the consumer spending front, with Americans starting to return to the stores. For instance, the auto sector saw modest sales gains in February, a trend seen in other hard-hit sectors as well.

This week, much of the focus will be on the Federal Reserve Board, with a new monetary policy statement from the Federal Open Market Committee (FOMC) coming out on Wednesday. While hiring remains soft (as the latest job openings numbers show), the unemployment rate is likely to reach the 6.5 percent threshold in the next month or two. Therefore, the expectation is that the FOMC will change its forward guidance on short-term interest rates to omit mention of an unemployment rate target. Fortunately, pricing pressures remain minimal, allowing the Federal Reserve to continue to pursue highly accommodative policies, even as it continues to taper its long-term asset purchases. Look for the FOMC to reduce its purchases from $65 billion each month in long-term and mortgage-backed securities to $55 billion.

It will be a busy week for economic releases, including new data on industrial production and housing starts. Manufacturing output should rebound somewhat, even as bad weather dampened activity once again. Similar findings are expected in the New York and Philadelphia Federal Reserve Bank manufacturing surveys. Meanwhile, housing starts should also pick up slightly, but new residential activity will remain subpar relative to a few months ago. Still, we remain upbeat about the housing market for 2014 as a whole. Other highlights this week include new measures for consumer prices, homebuilder confidence and leading indicators.

Chad Moutray is the chief economist, National Association of Manufacturers.

nam industry week - mar2014

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Small Business Confidence Fell Sharply in February

The National Federation of Independent Business (NFIB) said that small business confidence fell sharply in February to its lowest level in 11 months. The Small Business Optimism Index declined from 94.1 in January to 91.4 in February, essentially erasing the gains in sentiment that we have seen since the end of the government shutdown in October.

As such, this data continue to show that small business owners remain anxious about the economy even as there are signs of progress. Note that the NAM/IndustryWeek Survey of Manufacturers also found that smaller firms were less confident than their larger counterparts, especially in terms of expectations for sales, hiring, and capital expenditure plans.

In the NFIB survey, the percentage of firms saying that the next three months were a “good time to expand” has dropped from 10 percent in December to 8 percent in January to 6 percent in February. Of those saying that it was not the right time for expansion, the economy was the primary reason. Meanwhile, the “single most important problem” was government regulations, with 21 percent of respondents noting “red tape” as a top challenge. This was followed by taxes (19 percent), poor sales (16 percent), and the quality of labor (11 percent).

Much of the underlying data echoed the uncertainty seen in the headline figures. For instance, the pace of hiring appeared to have slowed in the month, with the net percentage of small firms planning to add workers in the next three months decreasing from 12 percent to 7 percent. Net sales expectations were also down significantly from 15 percent to 3 percent, with continued weakness in earnings and inventories. Still, it is perhaps worth mentioning that actual net job growth was unchanged at 2 percent, and on the positive side, capital expenditure plans rose from 24 percent to 25 percent.

It is hard to paint this report in a positive light. Perhaps there was a weather impact that dampened demand and sentiment, and if that is the case, we would expect the Optimism Index to rise next month. Yet, it remains clear that small business owners remain uncertain about the economy and about possible government regulations, something that has lessened overall confidence in February.

Chad Moutray is the chief economist, National Association of Manufacturers.

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Monday Economic Report – February 18, 2014

Here is the summary for this week’s Monday Economic Report:

A perfectly timed winter storm at the end of last week coincided with news that cold weather has had a negative impact on consumer spending and manufacturing output. Manufacturing production declined 0.8 percent in January, ending five straight months of expanding activity. Poor weather conditions closed some facilities and hampered shipments. Capacity utilization also decreased, down from 76.7 percent in December to 76.0 percent in January. That was the lowest utilization level since July. Yet, to the extent that weather contributed to the fall in manufacturing output, I would expect production to rebound in the coming months. After all, manufacturing production increased 3.0 percent in the second half of 2013, and manufacturers continue to be mostly upbeat about demand for 2014.

Nonetheless, we saw the effects of the weather in other indicators released last week as well. Retail sales fell 0.4 percent in January, extending December’s 0.1 percent decline. Reduced auto sales were a major factor in this decrease, with motor vehicle purchases down 1.8 percent in December and 2.1 percent in January. If you exclude autos from the analysis, retail spending was unchanged.

Although the University of Michigan and Thomson Reuters consumer sentiment measure was unchanged in February, respondents’ view of the current economy has slipped since December. One might surmise that weather impacted labor markets and incomes, lessening current confidence. However, Americans seem more optimistic about the future, with the expectations component rising from 71.2 in January to 73.0 in February.

There were signs that the U.S. economy’s recent improvements continue to bear fruit. Small business leaders have become more confident, with the National Federation of Independent Business’s Small Business Optimism Index edging higher for the third straight month, and January’s data also show an increased willingness to add workers. The net percentage planning to hire in the next three months rose to its highest level since September 2007. Along those lines, the number of manufacturing job postings increased from 283,000 in November to 297,000 in December. We have seen job openings in the sector recover from weaknesses midyear in 2013. Nonetheless, manufacturing net hires eased in December, and there was notable softness in the larger economy, both for new hires and job openings.

This week, we will get new numbers for the housing market and the latest data on manufacturing activity from a number of sources, including surveys from the New York and Philadelphia Federal Reserve Banks and Markit. The latter will report Flash Purchasing Managers’ Index (PMI) findings for the United States, China and the Eurozone. We will be looking for further evidence on the impact weather has had for manufacturers in the United States and for signs of improvement overseas. The Chinese PMI data had contracted in January’s report, but with output continuing to grow modestly. (For more information on worldwide trends, see the Global Manufacturing Economic Update, which was released on Friday.) Other highlights for the week include the latest data on consumer and producer prices, leading indicators and existing home sales.

Chad Moutray is the chief economist, National Association of Manufacturers.

retail sales - feb2014

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Small Business Confidence, Hiring Expectations Moved Higher in January

The National Federation of Independent Business (NFIB) said that small business confidence moved slightly higher in January, edging up for the third straight month. The Small Business Optimism Index rose from 93.9 in December to 94.1 in January, essentially where it was in July and August prior to the partial government shutdown.

Taking a longer view, sentiment among smaller firms has increased over the course of the past year; in January 2013, the index stood at 88.9. Still, it is also clear that small business confidence remains subpar, with the Optimism Index well below 100 – its threshold for stronger activity. It has not exceeded 100 since October 2006, over seven years ago.

On the positive side, smaller firms appear more likely to add workers. The net percentage of respondents planning to hire in the next three months increased from 8 percent to 12 percent, its highest level since September 2007.  Along those lines, sales expectations for the next three months were also higher, up from 8 percent to 15 percent. Nonetheless, earnings growth remained weak.

Even with better confidence data in January, small businesses remain anxious about the economy. The percentage of firms saying that the next three months were a “good time to expand” dropped from 10 percent in December to 8 percent in January. Of those saying that it was not the right time for expansion, the primary reasons cited were political and economic concerns. The “single most important problem” was taxes, with 24 percent of respondents noting this as a top challenge. This was followed by government regulations (22 percent) and poor sales (14 percent).

Chad Moutray is the chief economist, National Association of Manufacturers.

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Monday Economic Report – January 21, 2014

Here is the summary for this week’s Monday Economic Report:

Manufacturing production rose 2.6 percent in 2013, slowing from the 3.5 percent and 3.2 percent growth rate experienced in 2011 and 2012, respectively. Yet, the lower 2013 figure stemmed largely from weaknesses in the first half of the year, with manufacturing output rising an annualized 4.2 percent in the second half. As such, the sector ended the year on a strong note, with a pickup in demand and cautious optimism for 2014. Indeed, a number of other reports reached the same conclusion. Surveys from the New York and Philadelphia Federal Reserve Banks and from the Manufacturers Alliance for Productivity and Innovation (MAPI) both observed expanding levels of activity in their latest releases. Respondents to these surveys tended to be mostly upbeat about new orders, shipments, exports and hiring over the coming months—which is definitely good news.

Over the past couple years, the rebound in the housing sector has been one of the bright spots in the U.S. economy. Housing starts were lower in December, but it seems the November data were a bit of an outlier. Absent that soaring figure, new residential construction was generally higher to end 2013, particularly for single-family units. New single-family starts increased 7.6 percent year-over-year. Housing permits also eased slightly in December but increased 4.6 percent from the year before. The reduction in housing activity could have been due to severe winter storms, with somewhat higher borrowing costs as another possible contributing factor. The average 30-year mortgage rose from 4.29 percent in the week of November 27 to 4.48 percent in the week of December 26, according to Freddie Mac. Nonetheless, this still historically low rate helps to explain the generally upbeat assessment of home builders.

Meanwhile, the pace of retail sales slowed in December, with reduced auto sales dragging the overall figure lower. Still, motor vehicle sales increased 5.9 percent in 2013, making it one of the stronger components of consumer spending growth. Excluding autos, retail sales would have risen by 0.7 percent last month, suggesting broader strength than the headline figure implies. On a year-over-year basis, total retail spending increased 4.1 percent, a modest pace that marks the slowest since 2009.

The two measures of sentiment moved in opposite directions. Preliminary data from the University of Michigan and Thomson Reuters on consumer confidence was surprisingly lower for the month, down from 82.5 in December to 80.4 in January. The December data has noted a recovery in perceptions about the economy after falling in the wake of the government shutdown, and the expectation had been for January’s data to extend those gains. With a reduction in sentiment instead, this suggests that the public remains somewhat anxious about economic conditions. At the same time, the National Federation of Independent Business (NFIB) noted an increase in optimism for the second straight month. Underneath the main reading, however, the data were mixed, with more small business owners calling it a “good time to expand” but with sales and earnings remaining subpar.

In terms of news events, outgoing Federal Reserve Chairman Ben Bernanke delivered a speech at the Brookings Institution that provided his take on the lessons learned from the financial crisis. This “exit interview”—as it has been widely dubbed—was mostly a valedictory address defending the Fed’s monetary actions to help stimulate growth in the economy. Coincidently, Bernanke gave it on the same day that the Bureau of Labor Statistics reported that core consumer inflation had risen by just 1.7 percent over the past year. A similar conclusion on producer prices had been released the day before, and in each case, the data suggested that pricing pressures were increasing within an acceptable range, at least for now, according to the Fed’s stated targets.

There will only be a handful of economic data releases this week. From the manufacturing perspective, the highlights will come on Thursday. Markit will provide “flash” estimates for its purchasing managers’ index (PMI) reports for the United States, the Eurozone, and China. In addition, the Kansas City Fed will discuss the latest results of its regional manufacturing survey. In each instance, the expectation will be for manufacturers to note continued growth, building on recent gains. Other data releases include updates on the leading economic index and existing home sales.  

Chad Moutray is the chief economist, National Association of Manufacturers.

manufacturing production - jan2014

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Small Business Owner Optimism Returned to Pre-Shutdown Levels in December

The National Federation of Independent Business (NFIB) said that small business confidence increased for the second straight month, up from 92.5 in November to 93.9 in December. This means that the Small Business Optimism Index has returned to where it was in September before the government shutdown. Similar trends were seen in consumer sentiment surveys from the Conference Board and the University of Michigan.

Small firm owners ended 2013 more upbeat than they started it, with the Optimism Index up 5.9 points since December 2012. Still, it is also clear that small business confidence remains subpar, with the Optimism Index well below 100 – its threshold for stronger activity. It has not exceeded 100 since October 2006, over seven years ago. The net percentage of those taking the survey who felt that the overall economy would be better six months from now was -11 percent; however, this was better than the -20 percent in November or the -30 percent observed in January 2013.

Looking specifically at the December data, 10 percent of respondents said that the next three months were a “good time to expand,” up from 6 percent in October and 9 percent in November. Of those saying that it was not the right time for expansion, political and economic concerns were paramount. Indeed, the “single most important problem” was taxes, cited by 23 percent of those completing the survey. This was followed by government regulations (20 percent), poor sales (14 percent), and the cost of insurance (10 percent).

Despite the uptick in the headline figure, the underlying data were mostly mixed. There was a marginal increase in the percentage of small business owners planning to make capital expenditures in the next three to six months (up from 24 percent to 26 percent), and the percentage with job openings has improved over the course of the year even as it was unchanged for the month (23 percent). On the other hand, the net percentage planning to make hires in the next three months was off slightly (down from 9 percent to 8 percent), and sales and earnings data remain weak. In addition, owners continue to suggest that inventory stockpiles are “too large.”

Chad Moutray is the chief economist, National Association of Manufacturers.

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Small Business Optimism Edged Higher in May

The National Federation of Independent Business (NFIB) said that small business owners sentiment rose to its highest level in one year, up from 92.1 in April to 94.4 in May. Coincidently, that was the same index reading as was observed in May 2012. The optimism index has edged higher over the course of the past seven months, rising from a low of 87.5 in November. The variable that has changed over that time has been the perception about new orders. Sales expectations have risen from -5 percent in November to +4 percent in April to +8 percent in May. With improved business activity predicted, optimism levels have gone up, as you might expect.

Mirroring this rise, the percentage of respondents saying that the next 3 months are a good time to expand increased from 4 percent to 8 percent for the month. Despite the higher figure, there continues to be a uncertainties that dampen the enthusiam for expansion. The top reasons cited for it not being a good time to expand were economic uncertainties and the political climate.

The single most important problem in this survey – a widely watched measure for those who follow this report – was taxes, mentioned by 24 percent of those answering the question. This is the second month in a row that taxes topped the list, and it almost certainly is a reference to higher marginal and payroll taxes in 2013. The other top concerns were government regulations (23 percent) and poor sales (16 percent).

The employment picture did not change much from last month. The net percentage of respondents planning to hire in the next 3 months declined from 6 percent to 5 percent, but that was still an improvement from the zero reported in March. The percentage of those saying that they were unable to fill positions right now rose from 18 percent to 19 percent.

Chad Moutray is the chief economist, National Association of Manufacturers.

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Small Business Confidence Moves Lower Again in March

The National Federation of Independent Business (NFIB) reported that its Small Business Index dropped lower again from 90.8 in February to 89.5 in March. The average index reading over the past five months (November to March) was 88.9, or significantly below the average for 2012 of 92.2. This suggests that the small business owners continue to quite anxious about the economy, with subpar readings in the NFIB index indicating soft growth in sales and earnings.

Indeed, the net percentage of those suggesting that the next three months are a “good time to expand” has fallen from 7 percent in October to 5 percent in February to 4 percent in March, its lowest level since August. Of those saying that the next three months were not a good time to expand, their top reason was the economy, cited by 36 percent of respondents. This was followed by concern about the political climate, mentioned by 16 percent.

The “single most important problem,” garnering 23 percent of the responses, was taxes. This is more than likely a reference to higher marginal tax rates for many small business owners this year – the result of the fiscal cliff deal enacted on January 2. The other top concerns were government regulations (21 percent) and poor sales (17 percent). All other choices were in single-digits.

Many of the key indicators tend to reflect a high degree of caution moving forward, and perhaps help to explain the increase in pessimism in the headline number. The net percentage of small business owners expecting their sales to increase in the next three months shifted from +1 to -4 for the month. The data suggest that smaller firms have shed workers on net in the past three months, with no change anticipated for the coming three months. This is the first zero reading in the survey for hiring plans since March 2012, ending 11 straight months of slow employment growth for the sector.

The net percentage of firms planning to make a capital expenditure in the next three months was unchanged at 25 percent. As noted last month, this figure has risen over the course of the past five months from a low of 19 percent in November.

In all this is not a positive report for small businesses. Business owners are still very cautious and nervous about the footing of our economy.

Chad Moutray is chief economist, National Association of Manufacturers.

 

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