The latest issue of the NFIB Small Business Economic Trends is out today (see report). The January update for the December data is the highest level for the Small Business Optimism Index since February of last year. It is only fractionally below the level prior to the last recession.
Here is the opening summary in the PDF version of the report (download here):
The Index of Small Business Optimism gained 1.8 points to 93.8. December's increase is the fourth monthly gain, totaling 5.7 points overall. About half of last month’s gain was due to reduced concerns about business conditions 6 months ahead and improved expectations for real sales gains. One-third of the gain was due to a much welcomed 6 point improvement in profit trends.
The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings of the past three years. The NBER declared June 2009 as the official end of the last recession. Now, over two years later, the recession mentality is showing signs of abating. Today's 93.8 is rapidly approaching the 94.6 reading at the beginning of the last recession.
Improved Sales Outlook, But Still Net Negative
Elsewhere in the report we learn that
The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past 3 months gained 4 points, rising to a net negative 7 percent, still more firms report sales trending down than up. The net percent of owners expecting higher real sales gained 5 points to a net 9 percent of all owners (seasonally adjusted) after posting an 8 point improvement in November, but still stood 4 points below January's reading.
Inflation or Deflation?
The NFIB survey findings certainly don't support the frequent warnings of the hyperinflationists: "Seasonally adjusted, the net percent raising selling prices was 0 percent, unchanged from November but 10 to 15 points below April, May and June readings. This indicates little pressure on prices overall."
Business Optimism and Consumer Confidence
The next chart is an overlay of the Business Optimism Index and the Conference Board Consumer Confidence Index. The consumer measure is the more volatile of the two, so I've plotted it on a separate axis to give a better comparison of the volatility from the common baseline of 100.
As the chart illustrates, both indexes are currently below their respective levels at the onset of the Great Recession. But we have seen improvement in recent months. Let's hope this trend continues after the holiday season.
