NFIB: No Sign Of Economic Improvement
"After three months of sustained growth, the March NFIB Index of Small Business Optimism ended its slow climb, declining 1.3 points and landing at 89.5. In the 44 months of economic expansion since the beginning of the recovery in July 2009, the Index has averaged 90.7, putting the March reading below the mean for this period. Of the ten Index components, two increased, two were unchanged and six declined. Among the greatest declines were labor market indicators, inventory investment plans and sales expectations."
"After another false start, small business confidence has sputtered and stalled again. For the sector that produces half the private GDP and employs half the private sector workforce -— the fact that they are not growing, not hiring, not borrowing and not expanding like they should be, is evidence enough that uncertainty is slowing the economy. Virtually no owners think the current period is a good time to expand, because they simply don't know what the future holds. So why invest? And with the lack of any sustainable fiscal policy or a federal budget, no one's banking that Washington will be at forefront of any meaningful change. Overall, it appears that there will be little growth coming from the small business half of the economy; as the world economy slows, even big business may suffer." -- NFIB chief economist Bill Dunkelberg
"With future economic confidence still at levels lower than ANY past economic recession the recent bump in capital expenditure plans are likely related more to maintenance, upkeep and meeting current demand requirements rather than expansion. While the frequency of expenditures has improved in recent surveys; the levels of those expenditures remain well below what would be characterized as normal growth."
"The Federal Reserve continues to assert its intention to purchase a trillion dollars of Treasury securities and mortgages, adding a trillion dollars to its portfolio and stuffing a trillion dollars of new liquidity into the banking system, until the unemployment rate falls below 6.5% or inflation breaks out. Then it will 'consider' changing policy. Unless something really bad happens, this is a winning strategy for the Fed because eventually the private sector will improve, the labor force will shrink (as boomers leave), the unemployment rate will fall and the Fed can claim its policies 'worked', even if their policies made no contribution to the improvement or even slowed it down by creating uncertainty and fear among investors and business owners. This is a risky strategy."
The uncertainty surrounding the economy currently limits the ability for businesses to plan. For businesses their outlook is driven by those silly little economic factors like supply, demand and profits. Record profits have been driven by suppressed wage growth, layoffs, cost-cutting, productivity increases, accounting gimmickry and stock buybacks. As I showed previously the gap between profits and employees is at record levels.
However, those actions are finite in nature and inevitably it will come down to topline revenue growth. However, since consumer incomes have been cannibalized by suppressed wages and interest rates - there is nowhere left to generate further sales gains from in excess of population growth.
This is why it is important to view this report from the perspective of the business owner. Business owners are some of the best allocators of capital and resources. They spend money to increase production, expand facilities and hire employees to meet increasing demand. They operate within the confines of the real economic environment, rather than theory, and recent data points to a tougher economic climate ahead.
Until there is an improvement in the uncertainty that surrounds the economy there is likely very little headway that will be made in the months to come. While further stimulative programs may boost asset markets in the near term it is unlikely that the engines of economic growth will kick in until debt levels are reduced, tax policies are clarified and the regulatory environment is cleared.