The numbers: The National Federation of Independent Business small-business optimism index fell 0.4 point in December to a seasonally adjusted level of 104.4, the lowest in 14 months. Most of the decline came from labor pressures, as small-business owners say they are increasingly unable to fill open jobs.
What happened: In December, four of ten index components – plans to increase employment, plans to increase inventories, current inventory and current job openings – increased. Six decreased: plans to make capital outlays, expect economy to improve, expect real sales higher, expected credit conditions, earnings trends, and now a good time to expand.
Although the overall decline was the fourth in a row, the small-business lobby group continues to put a positive spin on conditions. “Actual hiring strengthened to the highest reading in six months, job openings are at a record high levels, and plans to create new jobs are down only three points from August’s record high,” NFIB said in a release.
Meanwhile, the group said, gauges of business conditions and whether it’s a good time to expand “have both tapered off since the record high index reading in August but still remain well above their historical averages.”
Big picture: NFIB has applauded the regulatory rollbacks, leaner government, and tax cuts championed by the Trump administration. (Even now, “government regs and red tape” is the second-most popular response to the survey question about “single biggest problem.”) Still, if the government shutdown drags on, it’s possible even this group’s sentiment could take a hit.
What they’re saying: Economists at Renaissance Macro took note of the strong hiring intentions in the NFIB report, but pointed out that they contrasted sharply with capital spending intentions. Any tailwinds from the 2018 tailwinds have now faded, they wrote on Twitter.
NFIB small business capital spending intentions sank in December, down to 25, the lowest since November 2016. Whatever tailwind from TCJA has been offset by weak global growth & trade policy uncertainty. On the flip side, hiring intentions climbed to a three month high of 23. pic.twitter.com/AB7ZJZrkZW
— Renaissance Macro (@RenMacLLC) January 8, 2019
Market reaction: There are factors that sway small-business thinking beyond the government and the labor force. Writing after the release of the November numbers, Pantheon Macro’s Ian Shepherdson said “this survey looks like a softening, but this is not an interest rate-driven end-of-the-cycle rollover; it has been triggered by the drop in stock prices, which in large part reflects the trade war with China. If that problem is solved, as we expect, the stock market will rebound, dragging the NFIB back up.”
The Dow Jones Industrial Average
lost about 9% during the month of December but is starting January off in the black.