NFIB Small Business Confidence Drops To 8 Month Lows, Divergence With ISM "Optimism" Intensifies

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The NFIB Small Business Optimism index came in at 86.8, a decline from the March's read. As the NFIB itself confirms: "The persistence of index readings below 90 is unprecedented in survey history. “The March reading is very low and headed in the wrong direction,” said Bill Dunkelberg, NFIB chief economist. “Something isn’t sitting well with small business owners. Poor sales and uncertainty continue to overwhelm any other good news about the economy.” Main Street America's optimism is at an 8 month low, ignoring completely any sense of optimism the algo, Fed and momo rally may be attempting to generate. "The index has posted 18 consecutive monthly readings below 90.  In March, nine of the 10 Index components fell or were unchanged from February’s not-so-great readings." As for credit condition: "Regular NFIB borrowers (35 percent accessing capital markets at least once a quarter) continued to report difficulties in arranging credit.  A net 15 percent reported loans harder to get than in their last attempt, up three points from February.  However, 89 percent of the owners reported all their credit needs met or they did not want to borrow." Even Goldman Sachs is unable to spin this information in a favorable light.

From Goldman's Jan Hatzius

BOTTOM LINE: The National Federation of Independent Business (NFIB) reported a setback in its index of small business optimism in March, extending a divergence with the indexes compiled by the Institute for Supply Management (ISM).

KEY NUMBERS:

The NFIB index of small business optimism falls to 86.8 in March from 88.0 in Feb vs. median forecast 89.2.

MAIN POINTS:

1. Swimming against the tide of generally upbeat readings on US economic conditions, the NFIB index posted a second consecutive small loss in March.  Since May 2009, this index has fluctuated in a range of 86.8 (which happens to have been the reading at both ends of this interval) and 89.1, in sharp contrast to the ISM's indexes for both manufacturing and nonmanufacturing activity, the former of which has risen fairly steadily from about 43 to nearly 60.

2. No single factor stands out as the reason for the setback, which was small to begin with, but it is noteworthy that businesses expressed more concern about credit conditions and also downgraded expectations for sales in the next six months.

3. We have long expressed some concern that the divergence between the NFIB and ISM indexes could mean that economic conditions are not improving quite as firmly as implied by the standard data, which tend to have a large-firm bias.  That said, the strong upturn in employment as measured in the household survey since year-end 2009 does challenge the persistent pessimism of the NFIB survey.