The US data calendar has been light to start the week. Today, the only release of note was the NFIB’s reading on small business sentiment. While the index was expected to tick up to 89.9 from 89.4 in February, it instead dropped down to 88.5. That is the weakest reading since December 2012.
Given the weak headline number, breadth in this month’s report was terrible. Of the inputs to the Optimism index, only two rose month-over-month. Of those falling categories, one of the more standout declines was an 8-point drop in expectations for real sales. While there have been even weaker readings over the past couple of years, that monthly decline ranks in the bottom 5% of all months on record.
The survey also questions small businesses on what they consider to be their largest problems. These results echoed the deterioration in expectations for higher real sales. As shown below, the percentage of respondents reporting poor sales as their biggest issue has been on the rise. While 8% is far from a historically elevated reading, it is up significantly from the past two years.
Poor sales are not the only concern that ticked higher. The first three months of 2024 have seen hotter-than-expected CPI prints (which we discuss market responses in tonight’s Closer), and small firms are increasingly concerned with higher prices. As shown in the first chart below, a quarter of firms noted inflation as their single biggest problem. That erases any improvement in the reading since last May. Additionally, while the increase was much less pronounced, the higher prices index likewise ticked up.That returns this index to the top decile of its historical range.In, we discussed the labor market indicators’ weakness as well as the weakness in capex plans per this report’s data. As shown below, each of these categories deteriorated in March with the exception of compensation (both actual and planned). The most significant decline has been hiring plans which is now down to the lowest levels since the spring of 2020. Prior to 2020, the last time the index was this low occurred in late 2016. While small businesses have cut back on hiring plans, they are also reporting job openings as hard to fill at similar levels to before the pandemic. More By This Author:“A Big F-ing Deal”Streaks Of The S&P 500Equities Shine Over Bonds