May 10, 2022
As we noted in an earlier post, inflation appears to be a major driver as to why small businesses are reporting historic pessimism for the US economy. Looking across the most important problems reported by small businesses in the NFIB’s monthly survey, inflation takes the cake as the biggest concern. Nearly a third of responding firms reported higher prices as their biggest problem; the highest level on record in data going back to 1986. That has now surpassed the prior series high of 20% in mid-2008.
Given inflation has stolen such a large share of small business worries, several other problems are now at or near record lows. For example, no firms reported competition from big businesses as the biggest issue. Government requirements and red tape are similarly at a record low after a one percentage point decline month over month. Taxes, poor sales, and financial and interest rates are also not a huge concern according to the survey.
With both government-related concerns dropping yet again, the combined reading between the percentage of respondents reporting taxes and government red tape as their biggest issues hit a new record low of 22%. The past few Presidential administrations have seen this reading more elevated and rising with Democrat presidents while Republican Presidents have coincided with lower readings. The current administration is now an exception with big declines as inflation concerns have come front and center.
The rise of inflation concerns have also resulted in a pullback in the share of respondents reporting cost or quality of labor as the biggest issue. While the combined reading rose one point in April thanks to the quality of labor, the combined reading is well off the peak of 40% from last September. Additionally, for the second month in a row and for the first time in roughly a decade, inflation continues to be the bigger concern. Click here to learn more about Bespoke’s premium stock market research service.
May 10, 2022
Sentiment on the part of small businesses held firm in April instead of the further decline that was expected. The headline index came in unchanged at 93.2 versus estimates of a 0.3 point decline to 92.9. That remains some of the lowest readings since the early days of the pandemic.
Under the hood of this month’s report, individual categories were mixed. Like the optimism index, there were four categories that went unchanged month over month while another four were higher. The rest declined with some of those drops resulting in historic lows. Along with other global macro releases, in today’s Morning Lineup we noted the broad weakness in labor market indicators in this month’s report. Businesses reported negative net hiring (unchanged from last month) as there are also still elevated plans to take on new talent but positions are historically hard to fill.
The most stand-out category is the outlook for general business conditions. This index points to record pessimism on behalf of small businesses. A net 50% of responding small businesses reported that they expect the economy to worsen versus improve in the next six months. Meanwhile, the percentage of respondents reporting now as a good time to expand dropped another 2 points and is in the bottom 1% of readings on record; only one point above the April 2020 low. Alongside those record/near record low readings, reported price increases pulled back slightly, though, the index remains at levels well above any precedence.
The NFIB also provided some more granular detail as to why businesses are reporting a lack of plans to expand. As we often note, the survey is often sensitive to politics and that is coming through here. 11% and 8% of responses blamed politics as the reason why now is either not a good time to expand or uncertain that now is a good time, respectively. With few respondents looking to expand on a net basis coinciding with a historic low for expectations for the economy to improve, of course, the dour economic outlook on the part of small businesses is the most widely reported reason to not expand. As shown below, 36% of responses blamed economic conditions as the reason they are not expanding and another 20% that reported uncertainty that now is a good time also blamed economic conditions. While insightful, “economic conditions” is a fairly vague term not providing much further insight into what exact economic conditions are holding businesses back (i.e. inflation or lack of labor).
That being said, we can extrapolate that inflation is likely the biggest reason. For starters, reported higher prices (inverted below) have surged during the pandemic right alongside the free fall in the outlook for general business conditions. Additionally, the percentage of respondents reporting inflation as their firms’ biggest problem hit another record high of 32% this month. Click here to learn more about Bespoke’s premium stock market research service.
May 9, 2022
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we take a look at the historic drop in the S&P 500 Energy sector (page 2) and natural gas (page 3). We then pivot over to a look at the huge declines in cryptos (page 4). Turning to macro data, we dive into consumer inflation expectations (pages 5 and 6). We also cover this week’s upcoming Treasury auctions (page 7) and provide a weekly rundown of speculator positioning data (pages 8-10).
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