Macro: NFIB Small Business Optimism - Pessimistic On Earnings Trend -

Macro: NFIB Small Business Optimism – Pessimistic On Earnings Trend

Nov 16, 2023Jeremy ParkinsonFinance0

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Small businesses continue to be pessimistic. The National Federation of Independent Business Optimism Index came in down .1 at 90.7. The survey measures opinions about business and economic conditions in October relative to September. This is the 22nd straight month that the index has been below 98, the 50 year historic average.

The most sighted reason for pessimism is they can’t find quality workers.

#2 reason for pessimism is inflation.

17% more firms reported worse sales in Oct versus Sept and 10% more firms expect sales to get worse.

When asked if the economy will improve, 43% more firms answered No versus Yes.

17% more firms express a plan to hire down from 18% in Sept.

43% of firms report open positions they cannot fill.

24% more firms express a plan to make capital outlays.

Only 6% of firms desire to expand (economic environment is the # reason not to expand).

Firms can’t find quality workers (* most likely at the price they want to pay or can afford to pay) and they have capital expenditure needs. They think the economy will get worse and that sales will get worse. They are concerned about inflation.Let’s consider their concerns in terms of P&L. They are concerned that the top line will not grow and perhaps even decrease. They are worried about inflation as it relates to capex and labor costs.Revenue down and costs up…The component of the index that had the biggest drop…Earnings Trends. The drop here was bigger than the five components that improved slightly. The only other component that got worse, Plans to Hire.What happens in the cycle? Past policy starts to weigh down on the economy. Pandemic policies caused inflation. This is costly for consumers, especially lower earners. (BTW, this exacerbates inequalities). The Fed hikes rates to try to freeze the money in the system and incentivize it to buy the bonds that paid for the stimulus during the pandemic. Profit margins get squeezed as capital costs go up and workers demand higher wages. Plans for capex get tabled, people potentially lose their job.What are small business saying about the reason they are so concerned about Earnings?

Increased costs

Sales Volume (this concern rose the most from a year ago and is the only component getting worse)

Cutting Selling Price

I’m not saying firms are going to start firing people. But I am saying that they are concerned about revenue and costs and the margin squeeze. Small businesses make up about 47% of private employment in the country.More By This Author:Macro: Consumer Sentiment – Six-Month LowMacro: Wholesale Trade: Sales And Inventories Macro: Banking: Senior Loan Officer’s Survey And Lending