NFIB Small Business Trends

October 2010

By William C. Dunkelberg & Holly Wade


The National Federation of Independent Business has published the quarterly survey on Small Business Economic Trends. It provides informative data on hiring projections, credit, inventories, capital expenditures, and profits. The Index of Small Business Optimism gained 0.2 points in September hitting 89.0; however the Index remains in recession territory. The October report includes a commentary section that does not mince words.

From the October Report:


Members of Congress fled with no action on important issues like expiring tax rates, leaving the cloud of uncertainty larger and darker. In response, consumer sentiment fell and owner optimism remained anchored solidly in recession territory. Thus, spending stayed in “maintenance mode”, deterioration of jobs continues, and capital spending remains at historically low rates. Owners won’t make spending commitments when sales prospects remain weak and important decisions such as tax rates and labor costs remain so uncertain.

Inflation? Not a threat. Far more owners have cut prices than raised them for 21 months in a row. Deflation? It certainly feels that way to a quarter of the owners reporting price declines for the goods and services they produce and sell, and apparently a majority at the Federal Reserve are now worried. New “inflation targets” are being floated out there, like two percent (characterized as price stability?). This will be the justification for more “quantitative easing”. Buying more Treasury securities may push rates even lower, but to what end? The impact on home sales will surely be minimal. With mortgage rates at record low levels already, even lower rates are unlikely to invite new entrants to the market. Of course, there may be other “agendas” such as a weakening of the dollar and support for asset prices. This is very dangerous as hundreds of billions of dollars are being “allocated” based on false prices (interest rates). The charade can’t be maintained forever and weakening the dollar only invites others to join the party. And lost in all of this focus on credit is the loss of hundreds of billions in interest rate income for savers. Certainly their spending has been curtailed as a result. Every dollar a borrower saves from some sort of refinance deal is a dollar of interest income lost to savers. Even lenders will lose income as loans with interval rate re-sets will be set based on historically very low Treasury rates (lowering net interest margins). No wonder confidence is low and uncertainty is high, it is hard to make sense of this.

“Double Dip”? Technically, this can’t happened as the recession officially ended in June 2009. New weakness would produce a new recession, perhaps like the 1980-82 period. Fundamentally, the economy is positioned for growth, with a one percent increase in the general population (which eats, needs housing and transportation) and more stuff wearing out in need of replacement. But there is always the risk of another serious policy mistake in Washington or other events associated with the “de-leveraging” of financial institutions and consumer balance sheets that could raise fear levels among owners and consumers, reducing spending further. A “lame duck” session for Congress is an uncertainty generator as is the coming election. Resolving uncertainty will be helpful.”

About the NFIB Quarterly Report

The NFIB Research Foundation has collected Small Business Economic Trends Data with Quarterly surveys since 1973 and monthly surveys since 1986. The sample is drawn from the membership files of the National Federation of Independent Business (NFIB). Each was mailed a questionnaire and one reminder. Subscriptions for twelve monthly SBET issues are $250. Historical and unadjusted data are available, along with a copy of the questionnaire, from the NFIB Research Foundation. You may reproduce Small Business Economic Trends items if you cite the publication name and date and note it is a copyright of the NFIB Research Foundation. © NFIB Research Foundation. ISBS #0940791-24-2. Chief Economist William C. Dunkelberg and Policy Analyst Holly Wade are responsible for the report.


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