Economists tell us that the past five years have been a glowing time for the U.S. economy, with a robust expansion. However, being in year six of an economic expansion, you can’t help but wonder, “Just how long can it last?”
The NFIB’s Small Business Optimism Index for April 2007 shows that small business owners think the current boom is winding down. Optimism among small business owners is gradually lessening.
The Small Business Optimism Index for April 2007 was at 96.8. That’s below the 30-year average of 100.2. In fact, for the past 11 months the Optimism Index has been below the average.
One chart from the NFIB report is particularly telling:
The above chart measures the net percentage of business owners who feel that the economy over the next six months will get better. As you can see, throughout most of the boom years since 2002 the six-month outlook by small business owners was strongly positive. Now in 2007, the sentiment is in slight negative territory. In other words, slightly more business owners think the economy in the next 6 months will get worse, than those who think it will get better.
What does this all mean?
Remember that the Optimism Index is not measuring the actual economy. Rather, it measures “sentiment” — how business owners feel about the business outlook and their plans to expand and invest. Clearly, the current mood among small business owners is less optimistic compared with much of the past five years. That’s a trend to keep an eye on.
On the other hand, be careful not to read too much into the NFIB’s report on Small Business Optimism. Don’t go all negative — the sky is not falling. Good businesses make good money even during slower economic times. And as the commentary accompanying the report states, 2007 is still expected to be a growth year — just not at the hugely robust rate of previous years:
“Overall, it is clear that the economy is growing much more slowly than a year ago. The Index of Small Business Optimism has been flat and below the 30 year average for 11 of the last twelve months. The job market numbers remain surprisingly strong. But it appears that expectations for growth have softened, leading to no pick-up in capital spending that most observers were expecting. The year 2007 should take its place as the 6th year in the expansion, but it will not be an exciting year.”