December 18, 2014

Small Business Optimism Index Shows a Positive Sign, Finally

During times like these I start watching the NFIB’s Small Business Optimism lndex like a hawk. Why?  Because it is such a good indicator of how small businesses feel towards the economy.  And change is in the wind in the economy, so we’re all looking for signs.

The NFIB (National Federation of Independent Business) has for decades conducted a monthly survey of small business owner optimism.  I’ve found it to be pretty close to what’s going on in the economy among small businesses.  Politicians and pundits may spin things, but not small-biz owners in this survey.

And this month the Small Business Optimism Index shot up by almost 6 points, to its highest level so far in 2009.

NFIB economic trends

Before you pass out from excitement over a couple of numbers on a chart, keep in mind two points:

(1) The Optimism Index and associated economic indicators are still pretty low historically.  We’ve got a long way to go before anyone will do high fives about the economy.

(2) It is still too early to tell if this is a sustained trend, or just a temporary blip.  However, based on other economic indicators, I am optimistic we’ll see a bigger improvement next month.  But who knows?  With the economy it’s easier to “see” by looking backwards, than it is to predict the future.

Meanwhile, William C. Dunkelberg, Chief Economist for the NFIB, once again this month points out the silver lining in the economic black clouds.  He writes compellingly that when we do get to the economic turn around, there will be a lot of pent up demand  — a very good thing for future sales:

‘Overall, “pent up demand” is building rapidly in the economy. Capital spending and inventory investment are at record low levels as are plans to increase spending. The reduction in employment is unprecedented in survey history and likely overdone. Prices have been cut to reduce inventory, but cut to unsustainably low levels. Car sales, usually around 15 million annually cannot stay at 9 million. New housing units are being constructed at a third the rate normally needed. Population growth and household formation continue apace and all the new households are not all going to live in Florida and California where excess house supply is huge.

Trillions of dollars sit on the sidelines in money market funds earning virtually nothing. The “dykes” are starting to leak, a flood is a significant upside risk. In the long run, consumers spend a fairly steady share of their income. The rapid growth in paper wealth and easy credit allowed them to get ahead of themselves, but they are starting to even things out and this will support gains in spending as the economy recovers.

The uncertainty now lies with government policies. Just how much of a headwind will new regulations, “nationalization,” higher taxes, spending that diverts private resources to public use and a stunning level of borrowing that could crowd out private investment pose for the economy? Can the Federal Reserve reclaim the liquidity it has created before inflation sets in? Time and politics will tell.’

Check out the Small Business Economic Trends report for May 2009.

16 Comments ▼

Anita Campbell - CEO


Anita Campbell Anita Campbell is the Founder and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses, and also serves as CEO of TweakYourBiz.com.

16 Reactions

  1. Depends on the margin of error though – usually for surveys like these 5%+

  2. Small Business Accountants like lawyers and doctors play a crucial role in our lives. A good accountant can help in supplementing your earnings manifold, so it is imperative that you choose a good and reliable accountant. And when you are running a business you need to have someone whom you can trust implicitly.

  3. I really enjoyed your optimistic view on the possible turnaround that we should be seeing in the up and coming months,
    lets hope the tide is starting to turn.

    I can tell you from where I am here in Australia that things are certainly in desperate need for improvement.

    Every day I hear of someone loosing their business or Job and I know that having to employ people myself it is not something that any body wants to see happen.

    Lets all hope and pray that we start to see some light in the near future.

  4. This confirms what my small retailer clients are saying – business is still not good, but they are feeling that the worst is over. They too believe there is pent-up demand, especially in fashion categories, and they’re starting to see the purse strings opening a bit – traffic is more consistent, and both units-per-transaction and average transaction are starting to bounce back.

  5. That’s good news to me. Any step in the right direction is a good thing. I do believe that we are cresting over the giant economic mountain and hopefully can breath a sigh of relief. All around me, it seems like people are spending a little more money and are feeling at least a little better about the economy.

  6. I’d have to agree with Ted in that it seems many feel things aren’t good, but they aren’t getting any worse either – so maybe the eye of the storm has moved through.

    This too shall pass and I agree that there’s something positive to come from it after it has. When things go down, the only other way to go is up.

  7. Good to see this ‘little’ optimism index. I too am positive that hopefully we are going towards full recovery. It may be a slow progress but it counts the most.

  8. I’m hearing similar things. Optimism really is contagious…

  9. While small business owners may be optimistic about the potentially recovering economy, it still doesn’t mean that we’re out of the woods just yet. We must continue to push for policies that favor small businesses! We must continue to push for greater workplace flexibility, for portable health insurance, for small businesses to band together across state lines to purchase health insurance and so much more. In essence, we must push for policies that allow small businesses to start and grow. Small businesses are the backbone of the U.S. economy and are where innovation lives!

  10. Donald, I agree with you. It’s contagious! That is why, we share this kind of news to more people because the more they will become optimistic as well.

  11. Interesting to see that the index is getting stronger. I have to check how it correlates to the PMI.

  12. Arthur,

    Sorry for now writing it out. PMI stands for Purchasing Managers’ Index. If you are interested in this index and how you could use it, please read my post, Do You Want To Keep Up With The Business Cycle? on Open Forum. Click on “Martin Lindeskog” Says: link.

  13. This recent recession has been a strange creature. Many of the small business owners I meet have never been busier and most our straining at the leash to get the economy back on track. The only thing that I have seen getting in their way have been the banks and their nit-picking over business venture loans.

    If I’m optimistic about something it has to be that in future we will undoubtably create a diffirent method of raising capital.

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