In an earlier post, we detailed the results of the August report on small business optimism from the NFIB.  Additionally, the monthly report surveys respondents on what are their biggest concerns.  As shown below, Quality of Labor was unchanged as the biggest concern in August with 21% of businesses reporting as such.  Cost of Labor, on the other hand, is less of a concern with only 9% reporting this as their biggest problem.  Although it is in the middle of the road compared to other issues, that is elevated relative to the rest of history with that reading in the upper 5% of all readings.  Behind Quality of Labor, Taxes are the next biggest issue for businesses at 17%.  In the same vein, Government Red Tape and Requirements were also lower falling 3 percentage points to 11% in August.  Finally, Poor Sales ranks as the third largest concern, rising 2 percentage points to 15%.  That snapped a streak of three straight months of improvements in this reading and runs contrary to many other data points that have pointed to a continued turnaround in demand.

Overall, labor and government-related concerns on a combined basis account for more than half of businesses’ biggest issues. For costs or quality of labor, the 30% combined reading has been on the rise for three straight months now, but is still off the peak of 36% from late last year.  Overall, that can actually be taken as a fairly positive sign for the labor market as it indicates that jobs are at least available.  Click here to view Bespoke’s premium membership options for our best research available.

Early this morning the NFIB released the results of small business optimism for the month of August.  The headline index rose 1.4 points to 100.2.  That was better than expectations of 99.0 which would have been only slightly higher than July’s reading of 98.8.  That indicates overall improved sentiment for small businesses in August though it remains far lower than levels from prior to the pandemic.

Of the ten individual components of the optimism index, most rose in August.  Only two, Expectations for the Economy to Improve and Expectations for Real Sales to be Higher, fell while Plans to Make Capital Outlays was unchanged. The index that saw the biggest jump was for Actual Earnings Changes which rose 7 points to -25.  That was the most that the index has risen in a single month since November of last year, but it still leaves it at the low end of the past decade’s range.

There is still a historically low level for expectations of future sales to be higher. That index was one of the two to fall in August as it is at its lowest level since October of 2016. Despite what appears like weak demand expectations, the net percent of owners viewing current inventories as too low stands at 3% which is in the 99th percentile of all readings.  The current reading of 3 is the highest since February of 1997. As such, a higher share of businesses plan to increase inventories.

The indices covering employment were another strong point of this month’s survey.  On a net basis, 21% of owners plan to increase employment which is up from 18 last month and stands in the top 5% of all readings.  That index is currently right back to where it was before the pandemic began.  Similarly, businesses are increasingly reporting job openings are hard to fill.  That index rose another 3 points to 33 and is in the upper decile of historical readings.  While improved and strong versus history, that index is much more muted relative to pre-pandemic levels than the index for Plans to Increase Employment.

Although they are not necessarily inputs into the headline number for the optimism index, some of the indices for actual changes shed some additional light on the picture for small businesses.  For example, the index for Actual Sales Changes rose this month to -15 from -28 in July.  That is tied with December of 1986 for the third-largest one month increase on record and the first back to back months with sequentially higher readings since November. While this still means that more businesses are reporting lower than higher sales, it also indicates that sales are continuing to turn around a bit. Meanwhile, fewer and fewer businesses are making capital expenditures.  That index fell to 47 which means only 47% of businesses reported capital outlays in the last six months.  That’s the lowest level since December of 2010. On the other side of the production function, labor also fell in August.  The index for Actual Employment Changes fell 1 point to -12. Unlike for Capital Expenditures, though, that is not a fresh low.

There is also an interesting divergence in readings on credit conditions.  As conditions remain accommodative, the index for Availability of Loans is at its joint highest reading on record (this index only goes back to 2004). Despite this, only 24% of owners reported borrowing on a regular basis.  That is a record low reading.Click here to view Bespoke’s premium membership options for our best research available.

Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

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Elections

What if Facebook Is the Real ‘Silent Majority’? by Kevin Roose (NYT)

Political polling and betting markets show a pretty clear advantage for former Vice President Joe Biden in November, but Facebook is the heartland for conservative enthusiasm around Donald Trump. [Link; soft paywall]

U.S. Election Priced as Worst Event Risk in VIX Futures History by Michael P. Regan (Bloomberg)

The VIX futures curve is badly kinked around October’s contract, which is tied to options covering the period of the US election. [Link; soft paywall]

Exclusive: Dem group warns of apparent Trump Election Day landslide by Margaret Talev (Axios)

Leaving the slightly hyperbolic headline aside, there is a very real possibility that mail-in/absentee voting creates big differences between in-person results and the actual vote totals come election day. [Link]

Trump’s popularity slips in latest Military Times poll — and more troops say they’ll vote for Biden by Leo Shane III (Military Times)

In 2016, Military Times polling showed a 46-37 positive favorability for the President, but today that has more than flipped with a 50-38 unfavorable tilt among uniformed service members; respondents report they plan to vote 41-37 for Biden versus 41-21 advantage for President Trump in October 2016. [Link]

Generation Generalities

When It Comes to Gen Z’s Brand Preferences, the Most Important Influencers Are Their Parents by Alyssa Meyers (Morning Consult)

A recent poll shows that the youngest group of Americans are the most likely to take cues on preferred brands across a range of products from their parents. [Link]

It’s time to dispel the biggest myth about millennials by Myles Udland (Business Insider)

An oldie but a goodie from Myles Udland (now at Yahoo! Finance) arguing that Millennials’ preferences were not some sort of landmark departure from the prior American way of life but in fact just the same old story. [Link]

Dystopia

Targeted by Kathleen McGrory and Neil Bedi (Tampa Bay Times)

A detailed investigation of the Pasco County, Florida approach to crime prevention which involved invasive intelligence gathering, aggressive harassment of citizens picked out on an ad hoc basis, and general disregard for civil rights that created more crime than it prevented. [Link]

Amazon Drivers Are Hanging Smartphones in Trees to Get More Work by Spencer Soper (Bloomberg)

Drivers are competing to get orders from Whole Foods’ delivery service by hanging phones in trees near the distribution center which then pass on requests to their devices. [Link; soft paywall]

Learning At Home

Mom’s Hilarious Video Sums Up How Confusing This School Year Is For Everyone by Carolina Bologna (Huffpost)

Faced with massive frustration over the patchwork backdrop of remote and in-person learning, a mom parodied the painful experience of learning online. [Link]

Parents on TikTok mock people with disabilities for the ‘New Teacher Challenge.’ These women are reclaiming their images by Scottie Andrew and Kat Jennings (CNN)

A social media trend that sets up disabled people as the boogeyman and teaches their children to fear those same disabled people is a painful example of how what may seem innocuous fun can be deeply hurtful. [Link]

Hot Back-to-School Items During Coronavirus Are Tents, Webcams by Austen Hufford (WSJ)

Protective products, keyboards, webcams, and tents are all in huge demand as schools struggle to prevent the return of students from creating COVID hotspots. [Link; paywall]

Whales

SoftBank unmasked as ‘Nasdaq whale’ that stoked tech rally by Kana Inagaki, Katie Martin, Robert Smith and Robin Wigglesworth (FT)

In addition to buying the underlying stocks, SoftBank has reportedly bid up the call options of many of its US tech investments in an effort to push up investments even faster; that behavior may explain some of the massive tech rally we’ve seen in recent months. [Link; paywall]

Buffett’s 1977 Letter Hints at Why He Likes Japan Trading Houses by Stephen Stapczynski (Bloomberg)

Recent Berkshire Hathaway purchases in five Japanese conglomerates are in large part explained by his long-term focus on understandable, long-term, and competently run operations which are not extremely expensive. [Link; soft paywall]

Moving

New Yorkers Flee for Florida and Texas as Mobility Surges by Steve Matthews and Alexandre Tanzi (Bloomberg)

While mobility across state lines has sagged in recent years, 2020 is seeing a surge in movement from New York and New Jersey to warmer climates like Florida, Texas, and the rest of the Sunbelt. [Link; soft paywall]

Pandemic Purchases

In a Pandemic, Boats Are No Longer a Bad Investment by Alex Lauer (Inside Hook)

Loaded with operating costs and depreciation, boats have long been viewed as a great way to do away with large quantities of cash. But new and used boat sales have exploded during the pandemic as people look for ways to be outdoors and have some fun without getting on a plane or staying in a hotel. [Link]

Who Profits From Amateurism? Rent-Sharing in Modern College Sports by Craig Garthwaite, Jordan Keener, Matthew J. Notowidigdo, and Nicole F. Ozminkowski (NBER)

New research suggests that college sports effectively transfers resources away from black and lower income students and towards students who are white and higher income. This will not surprise many who have spent time close to college athletics departments. [Link]

Amazon Air

Amazon wins FAA approval for Prime Air drone delivery fleet by Annie Palmer (CNBC)

Drone delivery is now permitted to move forward for Amazon, who joins UPS and Google gaining approval for its automated airborne delivery fleet. [Link]

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Have a great weekend!

Recent economic data has been making a habit of surprising to the upside as the pace of recovery from the pandemic lows has consistently surprised most economists.  While improved, the picture isn’t perfect.  This morning’s non-farm payrolls report, which was better than expected at the headline level, showed a concerning increase in the number of permanent job losses (people looking for work that left their prior job on an involuntary basis).  Also, looking at more real-time indicators of activity like TSA passenger throughput at the country’s airports appears to have leveled off after rising off the lows in May and June. This begs the question, has the low hanging fruit been fully harvested?

In some ways, the answer to this question is yes.  In March and April, pretty much everything shut down.  As awareness of the virus and how to deal with it grew, though, businesses that were little impacted have resumed operations. While those businesses have resumed activity, there are still a number of businesses such as ones in the travel, leisure, beauty, and hospitality sectors that remain weak in part because the demand hasn’t returned but also because government orders prohibit them from re-opening in full or even at all.  As concerns from the public start to ease and restrictions are lifted, these sectors should also start to improve.

While the pace of the recovery has slowed, it doesn’t yet appear to be rolling over.  Take the passenger data in the chart above.  While it appears to have stalled out in the last two months, part of the decline is the result of seasonal factors.  The chart below takes the same data as the chart above but compares the throughput levels to where they were a year ago and shows the y/y percentage change. On this basis, passenger traffic is still down an eye-popping 67% compared to a year ago, but yesterday’s level was actually the highest reading since late March and has actually been accelerating to the upside.  It’s possible that where Labor Day falls on the calendar this year could be impacting the y/y change, so we’ll have to see where things shake out in the next week, but even with that caveat, the pace of air traffic looks better on a y/y basis than on an absolute basis. Like what you see?  Try out a Bespoke subscription to receive our weekly Bespoke Report in your inbox this evening.  Click here to start a two-week free trial now!