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Tuesday, March 09, 2010

NFIB Small Business February

Link to the latest NFIB small business survey (February).

Overall this is grim. There was some good news - the job eliminations dropped considerably. Most job losses in small businesses will probably come from closing businesses through 2010.

Spending plans and optimism were near survey lows. Only 3% of small business owners reported that financing was their major problem. Ninety-one percent of business owners had all the credit they wanted. From the commentary:
The notion that thousands of commercial banks are refusing to make profitable loans that would expand business activity is mistaken and not supported by statistics for community banks. Aggregate bank loans are down and should be. They were too large when we entered the recession. Owners will borrow when expectations that sales will rise and generate new revenue to pay for investments and new hires become positive.

Capital spending and inventory investment plans remained historically low as did plans to create new jobs. Credit appears to be getting “easier,” there are some good applicants and some parts of the economy are making headway. Inflation pressures are low, compensation gains have stalled and far more firms are cutting prices than raising them, good news for the Federal Reserve, but bad news for owners since this weakens nominal sales revenue (although input costs have moderated as well). Profits trends are terrible, undermining owner’s ability to finance any aspect of growth. The private sector is struggling to get back on its feet, but receiving little encouragement from Washington which is preoccupied with health care and higher taxes to finance unimaginable deficits.
The bottom line is that small businesses are not expanding for the most part because sales are low and uncertainties are high. Since May of 2009, the small business optimism index has remained mired in the 88s. Every once in a while it will rise to the 89s for a month, but then it falls back again. In May of 2009 the small business optimism index was 88.9. In February of 2010, the small business optimism index was 88.0. This long a stretch at this level of pessimism is completely unprecedented in this survey, which began in the 1970s.

Of further concern in this survey was the "next three months a good time to expand" measurement, which came in at 4. This measurement has been trending down since September 2009, when it reached 9.

The six month outlook for business conditions is also falling very rapidly. At -9, this indicator is the worst reading since March of 2009.

These two numbers tend to be predictive of the general economy, and if this doesn't wake up DC, nothing will. But I suspect that nothing will. Until November, because if these trends don't shift, people will be showing up at the polls in an anti-incumbent fever.

See CR for comments about jobs and Census jobs in March and beyond. When the Census jobs begin to collapse out of the economy, we will see it in the numbers and in the real economy.

The real reason for the slowness of this recovery is credit - but not the credit that people aren't getting now, but the credit they took out before the recession. We are still overloaded with consumer credit. In previous recoveries, consumer credit expanded rapidly (largely due to monetary policy) after the trough, and beginning about 9 months into the recovery, provided a hefty basis for expansion. This time it cannot happen; consumer wages and incomes are still depressed, and one of the few ways the average consumer can improve his or her cash flow position is to unload expensive credit. A few years out, this will improve US economic prospects, but it doesn't help us now.

The tax issue is also a long-term concern. Many states have already raised taxes and mos t of the rest are raising them this year. The high probability is that taxes will be raised at the federal level in 2011 (Bush tax rates are set to expire and new health care taxes)l. Because this will reduce disposable incomes, once the write-off of consumer debts fully kicks in a new wave of austerity will hit the economy.

How high will taxes go? See my prior post here. I guess it is our collective choice, but if we don't start making choices soon, they are going to go very high indeed and we will be in a depression.

Comments:
M.O.M.,

they are going to go very high indeed and we will be in a depression.

Maybe it works like this:

A "jobless" recovery (2002-2007) results in a bigger recession.

A "job loss" recovery results in a depression.

It's really mind numbing that the depression so many are living through is being reported as a "recovery". The propaganda....I mean media coverage would have been drastically different if Bernanke and Geithner had not handed so much unearned wealth to Wall St.

The victors write the history.
 
Angry Saver - Uh huh.

The debt surge was really a response to incomes, rates and policies.

Trying to have the federal government borrow all the money ain't gonna work either.

We are down to the basics. We need to provide for those who are truly incapable of supporting themselves - but not munificently. And all this corporate welfare, most middle-class welfare and putting money into the pockets of people like Pickens has just got to stop.

Companies will have to learn to compete on their own. Banks need to fail.
 
M.O.M.,

The debt surge was really a response to incomes, rates and policies.

To me, the debt surge looked like an immoral credit/asset ponzi scheme foisted on an unsuspecting public by venal bonus seeking bankers. A giant skimming operation. But what do I know? Bernanke said the debt surge was the result of a huge, global savings glut that overwhelmed the financial system.

Apparently, global savings gluts make homes unaffordable rather than affordable. Talk about counter-intuitive.

And all this corporate welfare, most middle-class welfare and putting money into the pockets of people like Pickens has just got to stop.

Yep. Everybody can't live off unearned income. That kind of grift is only for Wall St. bankers.

No easy outs that I see. Pain City.
 
Companies will have to learn to compete on their own. Banks need to fail.

I wish. We have not yet begun to kick the can!
 
The tax code has got to change quick. To help
spur hiring, payroll taxes need to be eliminated.
Tariffs need to be applied to all imported manufactured goods to compensate for the loss of payroll taxes and to also help spur hiring. If foreign
companies want to sell a product here, let them make it here. I'm okay with importing employment and
exporting unemployment.
Sporkfed
 
Sporkfed - they tried your suggested course of action in the Great Depression, and it didn't work out so well; in fact, it made things considerably WORSE as global trade collapsed.
 
The bottom line is that small businesses are not expanding for the most part because sales are low and uncertainties are high."

Low sales says it all MOM! Without cheap available credit the economy has to contract back to a productive level but that is very painful.
 
I'm reminded of the speech NJ Gov. Chris Christie gave to the state's mayors. It's pretty good for a guy talking without notes:
http://www.njn.net/news/coverage/2010/christiemayorsfeb24.html

One of the key points is that after the election, and before the inauguration, the legislature and lame-duck governor got together to spend an extra $200 million. And what Christie faced on taking office was that every day the situation got measurably worse. The cuts had to come out of an ever-shrinking portion of the state budget.

I see this happening nationally now. I don't think Obama's economic advisors are stupid; they're just being ignored. And every day we spend more, and every day the cost to fix the problem goes higher and higher.
 
WSJ,
Trade had already collapsed in GD 1 by the time they
raised tariffs. We were exported more than we imported then. The trade balance was in our favor.
 
Trade had already collapsed in GD 1 by the time they
raised tariffs. We were exported more than we imported then.


Then you're admitting that tariffs don't serve any function to change the balance of trade.

There's hundreds of reasons for the trade imbalance; you have to look for things that exist today that didn't exist in 1930, and tariffs ain't one of 'em.

Here's just a few things that didn't exist in 1930:

Social Security
Medicare
Employer-provided Health-care
EPA
Fiat currency
Minimum wage


All tariffs are going to do is decrease supply, which will raise prices. You want to believe that manufacturing will magically return to domestic shores when a tariffs are introduced, while ignoring the retribution other countries will take by placing tariffs on U.S.-made items.

If you want the services listed above and plenty of others, you have to pay for them. Some of that payment is in the form of jobs and other living standards.
 
Without tariffs it's a race to the bottom for the American worker. Wages, benefits, etc... I'm not
worried about exports dropping, it's imports that need to decline.
we need to supply ourselves It will either be tariffs or a currency devaluation. we are our the other side
when compared to GD 1.
Sporkfed
 
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