See The Reason Small-Business Owner Confidence Has Plunged More than Five Points
One of the lowest optimism readings in survey history
WASHINGTON, December 11, 2012 – The small-business community exhibited an overwhelmingly negative response to the presidential election through a dramatic drop in owner confidence, reported by the National Federation of Independent Business (NFIB) Small Business Optimism Index.
In one of the lowest readings in survey history, the Index dropped 5.6 points, bottoming out at 87.5. The two major events in November were the national elections and Hurricane Sandy, which devastated parts of the East Coast.
To determine whether the results were from Hurricane Sandy or from the election, the results for the states impacted by Sandy were excluded from the computation and then compared
When the hurricane-impacted states were separated from the remainder, the data makes clear that the election was the primary cause of the decline in owner optimism.
“Something bad happened in November—and based on the NFIB survey data, it wasn’t merely Hurricane Sandy. The storm had a significant impact on the economy, no doubt, but it is very clear that a stunning number of owners who expect worse business conditions in six months had far more to do with the decline in small-business confidence,” said NFIB chief economist Bill Dunkelberg.
“Nearly half of owners are now certain that things will be worse next year than they are now. Washington does not have the needs of small business in mind. Between the looming ‘fiscal cliff,’ the promise of higher health-care costs and the endless onslaught of new regulations, owners have found themselves in a state of pessimism. We are forced to ask: is this the new normal?”
The biggest factor that seems to have impacted the decline in optimism is the expectation that future business conditions will be worse than current ones.
The net percent of owners expecting better business conditions in six months fell 37 points to a net negative 35 percent.
In October, the percent of owners who said they were uncertain as to whether business conditions would be better or worse in six months hit a record low of 23 percent.
Many of those who were uncertain about the economy in October became decidedly negative in November; 49 percent of the owners now expect business conditions to be worse in six months, while 11 percent still express uncertainty about the future.
In the history of the monthly Index, only seven readings were lower, all but one in the last few months of 2008 and early 2009, the depths of the last recession. Prior to 1986 (when the survey was conducted on a quarterly basis), there were just two readings lower, 1975Q1 and 1980Q2.
Some other highlights of November’s Optimism Index include:
• Hurricane Sandy: To examine the impact of the hurricane, the Index components were calculated excluding responses in the states impacted by Sandy. Overall, there were no significant differences, with net declines in positive responses of 64 percentage points among hurricane victims and 67 percentage points among owners in the rest of the country. Understandably, capital spending plans were slightly higher among the Sandy victims and labor force indicators were slightly worse. These data suggest that the decline in optimism was not related to Sandy per se, as sentiment fell everywhere. The only other significant event was the resolution of the election, an event that had created much uncertainty among business owners as to the future direction of economic policy and the economy.
• Job Creation: The major impact of Hurricane Sandy in the affected states was on the job markets. Nationally, job creation weakened slightly from the previous month, with the average change in employment per firm falling to -0.04 from 0.02 workers, essentially zero. Four million fewer Americans are employed today than in the first quarter of 2008. Hurricane Sandy’s impact on the thousands of small firms that were shut down along the East Coast was a significant reduction in hiring. When segregating the responses in the “Sandy States” (NJ, DE, NC, DC, VA, WV, MD, MA, CT and eastern portions of PA and NY) from the rest of the U.S., it is clear that there was less hiring and more job loss in Sandy States. Job openings were fewer in number and, looking ahead to the next few months, more owners in those states planned to reduce employment that in the rest of the country, although the same percentage planned to create new jobs. Reports of actual employment change were 8 points worse in the Sandy states. Many firms could not open for business and face an uncertain future, leaving plans to reduce employment 7 points higher there than in the rest of the U.S. The Labor Department report that there were no significant effects from the hurricane contrasts with the NFIB results in this regard.
• General Business Conditions: The most significant factor impacting the decline in optimism is the expectation that future business conditions will be worse than current ones. The net percent of owners expecting better business conditions in six months fell 37 points to a net negative 35 percent.. Not seasonally adjusted, 9 percent expect an improvement in business conditions (down 5 points), and 49 percent expect deterioration (up 30 points). Twenty-three percent reported “poor sales” as their top business problem, up 1 point. Overall, this is a poisonous climate for investment and expansion. Twenty-three (23) percent of owners still cite weak sales as their top business problem; this is historically high but down from the record 34 percent reading last reached in March 2010. The net percent of owners expecting higher real sales fell 8 points to a negative five percent of all owners (seasonally adjusted), 17 points below the 2012 high of net 12 percent reached in February. Not seasonally adjusted, 19 percent expect improvement over the next three months (down 6 points) and 43 percent expect declines (up 9 points). The percent of owners planning capital outlays in the next three to six months fell 3 points to 19 percent. Six percent of owners characterized the current period as a good time to expand facilities (down 1). This compares to 14 percent of owners who felt positive about expansion in September 2007.
• Credit Markets: Six percent of owners reported that all their credit needs were not met, down 2 points from October. Twenty-eight (28) percent of owners reported that all credit needs met, and 52 percent explicitly said they did not want a loan (66 percent including those who did not answer the question, presumably uninterested in borrowing as well). Only three percent reported that financing was their top business problem, compared to 23 percent citing taxes, 23 percent citing weak sales and 18 percent citing unreasonable regulations and red tape. Thirty percent of all owners reported borrowing on a regular basis, unchanged from October. There are slight indications that credit may be more difficult to obtain; a net nine percent of owners reported loans are “harder to get” compared to their last attempt (asked of regular borrowers only), 2 points higher than October. The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted negative 10 percent (more owners expect that it will be “harder” to arrange financing than easier), 2 points worse than in October.
Today’s report is based on the responses of 733 randomly sampled small businesses in NFIB’s membership, surveyed throughout the month of November. Download the complete study at http://www.nfib.com/sbetindex.
News Source: NFIB.com
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