Small Business Optimism Ticks Upward
Small business optimism barely beats expectations with a modest increase.
The October Small Business Optimism Index from the National Federation of Independent Business (NFIB) was released on Tuesday. The index results concern October although at some points in the report it is confusingly called 
the “November survey” by the NFIB. The index increased to 93.1 from 92.8, barely beating expectations for a reading of 93.0. It was interesting to note that the report referred to what it called a “recession level range” of between 88 and 94. By that criterion, the current result is barely within the “recession level range”. Nevertheless, the comment by NFIB Economist William Dunkelberg (which appears below) characterized the latest reading as remaining within “solidly pessimistic and recessionary territory”. Although the full report contains a good deal of useful information, including a number of informative charts, for our purposes the press release provides a handy summary. Thanksgiving Bullishness Fading
From the press release:
The National Federation of Independent Business (NFIB) Small Business Optimism Index rose 0.3 in October to 93.1; the slight uptick in the reading did not seem to indicate a dramatic shift in owner sentiment over the course of the month. The survey, conducted before the presidential election, found that the percent of owners uncertain about whether business conditions will be better or worse in six months, was at a record high (23 percent). This eclipsed the pre-recession record of 15 percent reached during the Carter Administration. NFIB’s forward labor market indicators weakened last month, and owner views of the future do not foresee much improvement in economic growth.
“While four of ten survey components rose, the Index still remains in solidly pessimistic – and recessionary territory,” said NFIB chief economist William Dunkelberg. “In the 40 months since the alleged ‘recovery’ started in July 2009, the Index has never exceeded a reading of 95; the pre-recession average for the Index is 100. The election is over and Washington looks much like it did on November 5th. The fear of stalemate among the small-business community is palpable, as the looming fiscal cliff and the threat of higher costs and more taxes are very real possibilities come January. Until then, not knowing the direction of the economy will always have a dampening impact on spending and hiring.”
One indicator that rose slightly in October is the frequency of reported capital outlays in the past six months, increasing 3 points to 54 percent. Similarly, the percent of owners planning capital outlays in the next three to six months rose one point to 22 percent. These positive changes, however, are unlikely a sign that capital spending might return to levels more consistent with past recovery periods, as only seven percent characterized the current period as a good time to expand facilities. The net percent of owners expecting better business conditions in six months was also unchanged at a net two percent.
History Lessons & Financial Crises
The major ETFs expected to respond to the Small Business Optimism Index for October are:
iShares Russell 2000 Index ETF (NYSEARCA:IWM) -0.44% Learn More About iShares
iShares Russell 2000 Growth Index ETF (NYSEARCA:IWO) -0.34%
Consumer Discretionary Select Sector SPDR Fund ETF (NYSEARCA:XLY) +0.35%
Consumer Staples Select Sector SPDR Fund ETF (NYSEARCA:XLP) +0.09%
SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) -0.39%
Bottom line: Although the Small Business Optimism Index for October indicated a slight increase from September, the reading remained within recessionary territory as a result of pre-election uncertainty.
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