The Burning Platform

Do small businesses, which account for 65% of all the new hiring in the country, become less optimistic during an economic recovery?

“After another false start, small business confidence has sputtered and stalled again. For the sector that produces half the private GDP and employs half the private sector workforce -— the fact that they are not growing, not hiring, not borrowing and not expanding like they should be, is evidence enough that uncertainty is slowing the economy. Virtually no owners think the current period is a good time to expand, because they simply don’t know what the future holds. So why invest? And with the lack of any sustainable fiscal policy or a federal budget, no one’s banking that Washington will be at forefront of any meaningful change. Overall, it appears that there will be little growth coming from the small business half of the economy; as the world economy slows, even big business may suffer.” – NFIB chief economist Bill Dunkelberg

Small Business Optimism Down in March

The March NFIB Index of Small Business Optimism ended its slow climb, declining 1.3 points and landing at 89.5. In the 44 months of economic expansion since the beginning of the recovery in July 2009, the Index has averaged 90.7, putting the March reading below the mean for this period. Of the ten Index components, two increased, two were unchanged and six declined. Among the greatest declines were labor market indicators, inventory investment plans and sales expectations. 

Small business owners are on the ground near the real people. They aren’t sitting in ivory towers at Princeton playing with regression models. They aren’t programming their high frequency trading computers to buy the dip. They aren’t calculating their bonuses and stock option compensation. They are trying to make payroll. They are trying to sell products. They are trying to understand how badly Obamacare will screw them. They are trying to navigate through the hundreds of thousands of rules, regulations and laws that are passed by politicians. They are paying experts thousands of dollars to decipher and comply with the IRS tax code. Well guess what? They have no plans to hire anyone and they expect sales to go lower.

Ben Bernanke’s money printing is not benefitting them in any way. His policies are not generating jobs. His policies are impoverishing savers, who now have less money to spend at small businesses. Ben Bernanke’s policies are designed to benefit Wall Street banks and mega-corporations. His policies are designed to drive stock prices higher and enrich the connected crony capitalists that control the country. Meanwhile, small businesses and small people are dying on the vine. The real economy is withering away under the weight of massive debt, crushing taxation, and ponderous government regulations and red tape.  

There has never been a greater disconnect between Main Street America and Wall Street in our history. It will not end well. Bill Dunkelberg seems to be an economist with common sense, as opposed to the Keynesian morons like Krugman and the other Wall Street shills paraded on CNBC.

COMMENTARY BY CHIEF ECONOMIST BILL DUNKELBERG

NFIB Chief Economist
William Dunkelberg

Small business produces half the private GDP and employs half the private sector workforce. But it is not growing, not hiring, not borrowing and not expanding enough. Small business owners have been depressed since 2007 and that has not changed. In the March survey of NFIB’s 350,000 member firms, 77% expect the economy to be no better or even worse 6 months from now that it is currently. Only 4% think the current period is a good time to expand substantially, compared to an average of 17% for the period 1973 to 2007. More owners plan to reduce employment in the coming months than plan to create new jobs. More owners plan to reduce their inventories than plan to order new stocks. The bulk of growth comes from the increase in our population of about 3 million people and the growing need to simply replace stuff that is wearing out, not enough to get the economy back to trend growth much less the strong growth needed to restore employment to 2007 levels.

The Federal Reserve continues to assert its intention to purchase a trillion dollars of Treasury securities and mortgages, adding a trillion dollars to its portfolio and stuffing a trillion dollars of new liquidity into the banking system, until the unemployment rate falls below 6.5% or inflation breaks out. Then it will “consider” changing policy. Unless something really bad happens, this is a winning strategy for the Fed because eventually the private sector will improve, the labor force will shrink (as boomers leave), the unemployment rate will fall and the Fed can claim its policies “worked”, even if their policies made no contribution to the improvement or even slowed it down by creating uncertainty and fear among investors and business owners.

This is a risky strategy. The evidence that “uncertainty” is slowing the economy is pretty clear now (research at the San Francisco Federal Reserve for example) and uncertainty probably increases with the size of the Fed’s portfolio (as has the price of gold). The real economy is hardly growing yet the stock market and corporate profits are at record high levels. How do we make a record amount of money without producing more output and employing more workers? Such contradictions breed uncertainty.

In the meantime, a record low percentage of small business owners claim that credit is their top business problem (3%) while taxes get the most votes (23%). Record numbers of owners have no interest in a loan (over 60%), because they have no use for the funds that have a high probability of successfully generating a return so the loan can be repaid. The Fed has made sure that there is plenty of money to lend, but in the process may have reduced the confidence that borrows need to take risks, borrow, spend and expand. And then there’s the impact of fiscal policy (or the lack of a policy). The President is flying around the country doing fund-raisers and stumping for gun control, but he still has presented no budget proposal. Enough said.