Small business optimism recessionary in March

optimism-components-nfib-201403The National Federation of  Independent Business, Small business optimism Index dropped 2.7 to 91.4 in February: “a reading that historically has been associated with recessions and periods of sub-par growth”. See full NFIB report and graphs here.

Contrary to the perpetual risk-selling optimism of Wall Street, the NFIB’s conclusion offers sobering insight into small business–the engine of  the real economy–and growth prospects over at least the next 6 months:

“Large firms are loaded with cash but unwilling to spend. For small firms, record low numbers reporting the current period as a good time to expand, for 5 years and running. More firms reducing inventory than adding to it, even in a growing economy. More firms are expecting a deterioration in the economy than an improvement. In NFIB’s Problems and Priorities survey, uncertainty about the economy and government policy both rank in the top 5 most severe problems facing small business owners. You don’t bet your money on a future you cannot see clearly.

The Federal Reserve now holds more government bonds than either Japan or China and remains the major buyer of mortgage securities. In the “olden days” banks made mortgages, lending out depositors money to credit worthy home buyers. Now the regulatory cost of making mortgages is so large that only a few big banks will do it. Regulators no longer allow banks to lend for 30 years and finance with short-term deposits. This risk is dumped onto the taxpayer.

The economy is not doing well and little is happening in Washington that would lead owners to think otherwise. Even the Fed’s guidance is for a weak economy, that’s what owners read and they are the experts (and policy makers). All policy is focused on the election, pandering to special interests, not the interests of the “middle class” (most of us) which simply wants to see better economic growth and serious job creation (along with improving compensation). Consumer sentiment is equally morose for this stage of a “recovery”. Only 1 in 10 consumers think government policy is good. The IRS is still taking the 5th and the DOJ investigator sends campaign money to the Democrat party. None of the “issues”are resolved; those involved hoping to stall long enough for other crises to shove them off the front pages-maybe Putin will save them. But the stock market is hitting new highs (as is the debt supporting stock purchases) guess we should all cheer.”

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