So many other US economic indicators have improved in recent months that we’d be remiss not to report one that worsened.
Small business sentiment is famously stubborn, but even so, the numbers from the latest NFIB survey were disappointing given the positive momentum at the end of last year:
The Index of Small Business Optimism lost 0.6 points in December, dropping to 92.6, not a huge change but not the hope-for rebound that would signify more growth in the small business sector. … This marks the 36th month of recessionary levels. Only once in that period did the Index get above 93 (last month) and has been below 90 for 26 months.
Emphasis ours. But the report also contained some hopeful elements, and if small businesses have become slightly more pessimistic in December, more of them also said that they were planning to hire:
Over the next three months, 10 percent plan to increase employment (up one point), and nine percent plan to reduce it (down three points), yielding a seasonally adjusted net six percent of owners planning to create new jobs, a two point gain from December and the best reading in 27 months. Until sales picks up, there is no pressing reason to hire. The reduction in the payroll tax will add some impetus to hiring as most of that addition to take home pay will likely be spent.
And in what is probably a good sign for the rest of the US economy, it appears that deflationary pressures have abated:
The downward pressure on prices appears to be easing as more firms are raising prices and fewer cutting them. … Still, December is the 25th consecutive month in which more owners reported cutting average selling prices than raising them. However, the trend is clearly supportive of higher prices in future months. Widespread price cutting does contribute to the high percentage of firms reporting declining sales revenues, so this source of disappointing nominal sales trends will soon vanish. Plans to raise prices rose two points to a net seasonally adjusted 15 percent of owners, the highest reading in 26 months. With an improving economy, more and more of these hikes will “stick”. Overall, this is not a “deflationary” outlook, but price increases will remain moderate for some time.
Finally, it is generating new sales, not obtaining financing, that remains the biggest concern of these businesses. If anything, as we covered in some depth last month, signs are that credit conditions have relaxed on SMEs:
As with the monthly payroll reports, it’s best not to read too much into any one month’s indicators — and the changes this month were really quite small. But the longer-term trend remains simply that small business sentiment has yet to agree with the wider consensus of an accelerated US recovery.
Related links:
Home prices and the small biz credit crunch – FT Alphaville
Small biz outlook: less grim, still not great (like everything else) – FT Alphaville