NFIB Survey Suggests Weak Economic Prospects

Earlier this week, the National Federation of Independent Businesses released their monthly Small Business Survey. While this data is much overlooked by the mainstream media, it really shouldn’t be. Out of the 26 million businesses registered in the United States, only 6 million have active employment and generate revenue. Of that total, almost 80% have fewer than 5-employees. Simply, it is small businesses that drive the economy, employment, and wages.Therefore, what the NFIB says is extremely relevant to what is happening in the actual economy versus the headline economic data from Government sources.

In August, the survey declined 2-tenths of a point to 94.4. While that may not sound like much, it is where the deterioration occurred that is most important. Furthermore, despite an improvement from the financial crisis lows, the current levels are still well below the levels normally witnessed at the late stage of an economic recovery.

As noted in the chart below, the surge in optimism has now returned the survey to levels normally associated with the onset of recessions.  And it only took 8-years to get there, hardly a recovery to “crow” about.

However, the internals of the report were much less exuberant as noted by the NFIB:

“Once again, the NFIB survey showed no signs of strength in the small business sector. Uncertainty seems to be the major enemy of economic progress and the political climate is a major contributor to the high levels of uncertainty that we’ve seen. The current economic environment is not a good one for strong or sustained growth.”

This certainly isn’t the message that we are getting from the mainstream media suggesting all is well within the economy. But, here are the interesting highlights:

• The outlook for business conditions in the next six months had the most dramatic change, dropping seven points.
• Setting an all-time high for the survey, 39 percent of business owners cited the political climate as a reason NOT to expand. 
• Uncertainty about the economy and government policy also hit record highs among small business owners.

The issue, despite all evidence the contrary, remains a prevailing “blindness” to the reality of economic cycles.Economic recoveries are finite and by all measures the current economic recovery has been very long when considering this is the 4th longest expansion in history with the lowest overall rate of growth. 

While longer periods of economic expansion have certainly existed, the underpinnings of those expansions are substantially different than what exists currently. The chart of real, inflation-adjusted, final sales exposes this issue.