Looks like the US economy is now in the age of Indicators That Are Improving But Remain Historically Weak For A Recovery.
On top of this morning’s retail sales and PPI releases, there was also the latest monthly index of small business optimism from the NFIB — and it appears to follow suit:
Overall, small business owners continued to report more improvements in the economic environment, but the gains were small. The Index of Small Business Optimism gained 1.5 points, but the reading of 93.2 is still very weak, closer to a recession reading than indicative of a recovery. Although the November reading is higher than the prior 34 months, it is still lower than the November – December, 2007 readings by over a point, and those were the lowest 2007 readings as the Index fell all year signaling the coming end to the expansion in December. So the Index has climbed from its recession low of 81 but is far short of even the average value of the Index prior to the start of the recession, and far below values that have typified a recovery period.
It was encouraging to see substantial improvement in expectations for economic performance (sales, business conditions), critical if spending and hiring are to elevate beyond survival and replacement levels. And plans to hire, make capital outlays and invest in inventories all rose, albeit from historically low levels.
Here are the charts we normally show that illustrate what small businesses are most worried about:
Clearly, sales — or “demand” in economist-speak — continue to be the dominant concern, while businesses continue to say that they don’t want more loans and are satisfied with their financing needs (though they also expect financing conditions to tightened).
But as we’ve pointed out before, these graphs are also somewhat limited in what they tell us, as they don’t indicate how each problem would rank after the first, i.e. their relative rankings.
All the same, we’ve been trying to discern for some time whether the decline in small business lending since the end of last year was primarily a demand- or supply-driven phenomenon. Why does it matter? To repeat ourselves:
Small business performance has been shown to have a strong correlation with conditions in commercial real estate, which itself affects small banks, which lend to small businesses, and so on — and finding out how much of the decline is a supply vs a demand problem would therefore be quite useful. Among other things, it would to help us understand whether ideas like the recently passed $30bn bill are good ones.
Well, it’s starting to look like demand is the winner, though we continue to wish there were better data available for this. In addition to the NFIB’s latest, have a look at the next two charts, constructed from the Fed’s quarterly senior loan officer survey:
What it shows is that even as lending standards continue to be lax, demand for loans from small firms has declined since the economy went sour in the spring.
Something to watch in the New Year, then.
Related links:
Bank lending to small businesses: supply v demand – FT Alphaville
The small business credit crunch – FT Alphaville
Keep your credit, buy our stuff – FT Alphaville
A grim outlook for small business lending – FT Alphaville