Photo: Dennis Jarvis
“Crashed” is the word the NFIB uses to describe what happened to small business optimism in August.Confidence in the future of the economy crashed in August, taking the Small Business PESSImism Index down 1.8 points to 88.1. This was the sixth monthly decline in a row. The expansion is officially two years and two months old, but the small business half of the economy is still in the “tank”. Expectations for real sales growth and business conditions were the major contributors to the decline for the second month in a row.
This isn’t a huge surprise, as sentiment measured by just about any survey has been pretty horrible.
Here’s a breakdown of the survey by index components:
That being said, the NFIB is getting super-political in its reports.
The August survey was mailed out as Congress and the Administration reached their “deal” to curb spending and reduce the debt/deficit problems. Had this been a convincing one to “Main Street,” confidence would have improved and, likely, also spending and hiring. But, NFIB’s confidence measure took a dive as did the University of Michigan’s consumer confidence Index which produced its lowest reading since 1980. In particular, it was expected real sales gains and expected business conditions in 6 months that plummeted in the NFIB report. These two components by themselves lowered the Index 2.1 points versus the total loss from all 10 components of 1.8 points. With such a dim outlook, owners are not going to do a lot of hiring or expanding.
Business expansion, the purchase of new equipment and vehicles and even hiring are “long term” investments. Most important to the decision process is the sales forecast, but against expected sales over the life of an asset, the owner must figure in labour costs, taxes, the cost of new regulations, financing costs and the like to decide whether or not an “investment” will pay off. This is one reason why “short term” stimuli don’t work. The planning horizon for the private sector is longer than the time to the next election!!! At this point, no one knows what their tax rate will be 6 months from now; no one knows what the health care will do to labour costs. Higher for sure, but by how much? Yes, the President suspended costly EPA rules that were going into effect, but you know that they will be back after the election if he wins
The NLRB is pushing the union agenda, card check, mandating owners to post notices of the right to unionize, interfering with Boeing’s business decision making (and the President’s Chief of Staff was on Boeing’s board when the South Carolina project was approved). Supporters of the Administration are pushing for another hike in the minimum wage and the new CEA chairman favours and wants a national sales tax to be imposed. It would take a book to itemize it all. Short-term fixes will not help, private sector decision makers think longer term – they do and they don’t like what they see, there is little clarity or certainty. Consumer spending is still a key factor and 9 of 10 people who want a job still have a job and would spend more if they were more confident about the future.
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