Small Business Apocalypse Or Political Vendetta?

Wolf Richter's picture

Wolf Richter

The National Federation of Independent Business tried to shock the world with its report that small-business owner optimism plunged 5.6 points to 87.5%—below the 87.8% of the apocalyptic post-Lehman November 2008. A huge setback; small businesses are the job creating machine of the economy. “Something bad happened, and it wasn’t Sandy,” said NFIB chief economist Bill Dunkelberg. “It was the election.”

Small-business Optimism took a nasty hit during the financial crisis—and hasn’t recovered yet. When NFIB started the monthly surveys in 1986, it set the level at 100. Optimism would drop into the 90s then bounce back above 100. From late 2003 through 2004, peaks approached 110. But in 2005, Optimism faded. It dipped below 90 for the first time in March, 2008, as Bear Stearns blew up. By September, it was back at 92.9, the high for the year. Despite Lehman’s collapse.

Small-business owners apparently liked that Wall Street got clobbered. As markets nosedived, however, optimism followed. In October 2008, it dropped 5.4 points to 87.8, rose a smidgen in November, then descended to its low of 81.0 in March, 2009.

Recovery of small-business Optimism was only slight, unlike the markets that were goosed by the trillions that the Fed handed to its cronies. Small businesses got no more than crumbs. By April 2010, Optimism ventured above 90, then dropped again. In February, 2011, it reached a post-crisis high of 94.5, dropped again, hit that high once more in April, 2012, then dropped and finally hit 87.5% in November. A tough slog.

The most significant factor in November’s plunge?  “The expectation that future business conditions will be worse than current ones,” Dunkelberg explained, the Outlook for General Business Conditions having crashed from +2% to -35%—worse than anything during the crisis. A “poisonous climate for investment and expansion,” Dunkelberg said.  

Problems were lurking everywhere, such as inventories that were too high, but some sub-indices, particularly for “actual” sales and earnings, weren’t all bad, given the debacle of the post-crisis years. Credit was plentiful. Actual and planned job openings continued to tick up, as did hiring plans. Bad news for workers though: planned compensation has been dropping this year, after a feeble recovery from crisis lows.

In this manner, the details, graphs, and tables of the report don’t paint a picture of the sudden apocalypse that the headline number promised—but of a long-term depression that started in 2005 and has improved only a few notches since the trough of the crisis! All in an economy whose growth is “lumpy” [read... It’s Official: The Consumer Is Alive and Dead].

But what jumps out already in the introduction is a political agenda rather than objective interpretation of data: “Between the looming ‘fiscal cliff,’ the promise of higher healthcare costs, and the endless onslaught of new regulations, owners have found themselves in a state of pessimism. We are forced to ask: is this the new normal?” So who are these “owners,” and who is “we?”

A lobbying and advocacy organization with offices in Washington DC and all state capitals, NFIB claims to be “nonpartisan” despite its support for Republican candidates. Its PAC, the SAFE Trust (Save America’s Free Enterprise Trust), is “the most powerful and effective small business political action committee in the country.” Among NFIB’s many, often laudable, causes was its fierce opposition to the Patient Protection and Affordable Care Act, or Obama-care; it joined 26 states in the lawsuit that challenged its constitutionality. And lost when the Court upheld most provisions.

With 350,000 members—of the 6 - 30 million small businesses in the US, depending on who is being counted—the organization represents between 1.2% and 5.8% of all small-business owners. These members received the surveys that would lead to the report. Of the 3,938 responses, 733 were deemed “useable.” They represented companies ranging from one-employee operations (10%) to companies with more than 40 employees (7%).

The data collected from the “useable” responses was further trimmed by excluding the results from the “Sandy States,” namely “NJ, DE, NC, DC, VA, WV, MD, MA, CT, and eastern portions of PA and NY.” Even though there were “no significant differences” in states impacted by Sandy—capital spending plans were “slightly higher,” labor force indicators “slightly worse,” etc.—the report comes to the conclusion that the decline in Optimism wasn’t related to Sandy but “the resolution of the election.” And it used the trimmed and manipulated results to lash out against President Obama.

“The ‘war’ on success is now public policy as the President insists on higher tax rates for the ‘rich,’ those making $250,000 or more,” Dunkelberg states. “He continues to obfuscate by claiming that only 3% of small-business owners will be impacted, as if even those are not a concern.” Hence, the sudden and apocalyptic post-election decline in small-business optimism. But the long shadow of a political agenda darkens the validity of the data—just when we need accurate data the most.

A similar thing occurred with a thermometer into the brains of corporate America that also plunged to lows not seen since the financial crisis. But just before Lehman, these CEOs had exactly zero predictive capabilities. Read.... Fear of Impending Economic Collapse Or Just Manipulation?

And here is California, in trouble again: revenue for November fell 10.8% below budget. Democrats thought they could hammer “the rich” by convincing voters to pass Proposition 30 to create the highest state income tax in the nation. But it appears high-income earners have “voted-with-their-feet,” resulting in a $1 billion shortfall in taxes, and the beginning of a new financial crisis. Read.... California’s Budget Goes Off the Cliff.

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delivered's picture

I'm a small business owner and work directly with numerous small businesses (ranging from a start-up to $1 million in annual revenue to $200+ million in annual revenue). The bottom line for small businesses is that the deck, now more than ever, is now stacked against these businesses with the root of the problem centered in three primary problems.

- First, top line revenue growth continues to be challenging based on the overall condition of the economy and consumer. The selling cycle has never been more challenging for most businesses and if you really look at the facts, most small businesses that have survived and grown during the past 5+ years have done so by taking market share as their competition fails.

- Second, capital for less than stellar companies (i.e., B and C type deals as oppossed to A deals) is still scarce and contrary to public perception, very expensive. For the strongest companies, cheap capital is available but these operations really don't need extensive amounts of capital to grow at 2 to 5% a year. For weaker companies, welcome to the jungle as the Pirate Funds/sources (more politically correct than referencing them for what they truly are - rape, pillage, and plunder funds) are standing ready to loot your business.

- Third, the compliance and regulatory environment is as unfriendly as I've ever witnessed as between significant uncertainties on the tax front (other than they will be increasing) and the continued burden and added costs being placed on the employer to hire employees (including Obamacare, unemployment taxes, worker's compensation insurance, etc.), not to mention the endless stream of state, regional, and county permits, fees, assessments, taxes, levies, etc., anyone that is thinking about opening a business needs to be prepared to navigate a maze of regulations and compliance issues that are almost beyond believe for certain business (e.g., think manufacturing in California and the environmental issues that will need to be managed).

In my 30 years in business, I've never experienced such a challenging environment for small businesses and a public sector so disconnected from Main Street. The barriers which have been formed over the past 5+ years by the public sector (not to mention the private sector in bed with the public sector) have created so much structural damage to the job engine creating machine in this country from small businesses that it will take at least a decade if not a generation to rectify this. That is, if these policies can even be changed as if not, just look to Europe to gain an understanding of where the US will be by 2020 as a perfect case study is being played out right in front of Washington's eyes.

malek's picture

So Wolf, if I read your post right, you're saying:

There is no cause for alarm because
- it's only a continuing long-term depression that started in 2005
- that data must be massively massaged towards negative anyway, as it was collected and aggregated by a lobbying and advocacy organization
- the queried Small Business owners have no clue anyway, just as the CEOs of coroporate America had zero predictive capabilities before the Lehman event

All is well. Nothing to see here, move on.

Or did I misunderstand some part of your post?

steve from virginia's picture


Kill the Fed and the US collapses anyway.


Kill the government and the US collapses although no government would mean no economy: our public sector pays the interest cost of the private sector. Our public sector enables the functioning of the private sector. 


Our economy is broken. It isn't a good economy with a broken government or a parasitic central bank. It is a bad economy that was broken from the very beginning, held together with duct tape and coat-hanger wire ... by the government. If the economy could fix itself it would have already.


Once our industrial economy began it was running on borrowed time (and energy).


Now ... the energy is too costly and so is the time. What an economy borrows IS time, credit/money are just time-derivatives.  Use of the economy cannot meet the associated time- and energy costs. Period. What our economy produces is waste ... period.


Obviously, more time cannot be borrowed as we have over-borrowed already. This is our onrunning crisis, the inability to gain more time.


Nothing can change that fact, not the Fed, not Bernanke, not Goldman-Sachs or the EIA, not Obama, not Ford or GM, not some liar @ MIT or in the Euro-zone, not the Chinese or the Japanese or some mad scientist with a solar cell or a thorium reactor. We are up a creek without a paddle and the noise in the background is a gigantic waterfall we've always known was there but convinced ourselves didn't apply to us ... because we're too smart.


"I know what you're thinking ... did he fire six shots or only five? In all the excitement I kinda lost track myself ... but, seeing as how this is a .44 magnum the most powerful handgun in the world ... one shot will blow your head clean off ... you have to ask yourself ... "do I feel lucky?" ... well, do ya, PUNK?"


Well ... do ya ... punk?

kevinearick's picture

Implicit Cities

 Let’s summarize, shall we?

So, (yes, I do that on purpose – the yard apes hate that) an empire depends entirely upon attracting intelligent kids to its technology center, and otherwise employs a hash table with a delay pointer system to stacks, adjusting the severity of the law to penalize nonconformance to its control features, which serve as multiplier effects. What does that sound like in physics? Chemistry? Biology? The operators are like those little dinosaurs that hunt in packs on Jurassic Park.

The Internet pulled the floor out from under the city/state model, because the kids no longer had to physically congregate, and as the empire attempted to control the Internet they simply created an implicit Internet. The gold is no longer rushing to California, or anywhere else. Now, the empire is a vine, rushing away from its dead root system, hoping to find better soil. Unfortunately for it, there are no large, empty continents to exploit, their operators gave up space exploration for petrol dollar control, and both small business and labor within the empire have been crushed to kick the can down the road, with corporate monetization of dead inventory. What is a Fed chairman to do?

You can’t change human behavior in real time, because it is in a positive feedback loop with the law that protects legacy non-performing assets, and capital is not going to terminate itself. In the early stages of an economy, Family Law is geared to raising children and producing income, the future. As it ages, capital gears it to favor capital accumulation, the past. Go to any city and you will find that the best producers are discouraged from having children, because everything they have or will ever make can be taken away with no due process of law, and the poorest producers, welfare mothers with the most children, “earn” a premium in the welfare state, with every conceivable legal protection. 

The Fed prints, with no exit, and crushes the global economy in a vice. The US has the best seat on the Titanic, because the other countries have been in the same families for centuries longer. They cannot get out of their own way. The ivory towers are collapsing, and the kids are getting out of the way. Can you blame them?

The farmers buy land just outside the city, sell a piece for incorporation, and move out. Technology works the same way. In effect, you are printing your own money. The kids have decided not to give this empire any more technology. The virus is contained and exponentially consuming all its resources.


August's picture

"...there are no large, empty continents to exploit...."

Large, empty continents are very good, especially the mid-latitude ones.  All players who get in on the action feel like heroic, virtuous geniuses, at least for the first few hundred years; after that, not so much.

DonutBoy's picture

I'm a small business owner and I know a lot of others.  Here's what's happening - many are changing the form of ownership, from a schedule C business or an LLC to a corporation.  Under the corporation they're going to take small salaries that skip the penalty tax rates.  They'll maximize the amount of their living expenses that get paid by the corporation and get reported as business expenses.  Previously they wouldn't have bothered - but they don't like the idea that they're going to be the victims of the country's unwillingness to act responsibly.

Some are looking for ways to invest the proceeds of the business outside of the US in a quiet way.  If the corporation has profit 'earned' off-shore, it will stay off-shore.  So we are encouraging small businesses to follow big business and figure out how to earn off-shore.  Super.

All of this activity does nothing to improve the economic outlook for the US, on the contrary - its a further drag.

The tax-ratre increase has a brief effective time-span.  It may boost revenue for 6 months.  After that it's a loser, because the smart people are not going to be punished for their success.  They'll get out of the way of the new rates faster than the public sector guys can change the rules.

James-Morrison's picture

The short spurt from "tax the rich" revenue is the first step toward raising everyone's taxes.

Bronco's goal is be blameless.

So after the "tax the rich" plan fails, we may all need to become Corporations with offshore revenue streams. 

Do foreign investments held in a foreign brokerage account qualify as being income earned offshore, for James-M International?



tip e. canoe's picture

reading this thread all the way through made me feel like your avatar.


centerline's picture

Either way, the net result is deflationary and will cause unemployment to rise.  Small business in most cases is already on thin ice.  The next leg down from here is a nasty one.

August's picture

Only if you can successfully obscure the nature the income earned by James-M International et Cie.  Your firm has to derive it's income from bona fide off-shore business activities (typically involving such items as plant, equipment and employees), not just holding investments. 

As usual, the IRS gets to determine what constitutes "bona fide".

GAAPpreNixon's picture

Any small business owner with his eyes open disregards ALL the BLS BULLSHIT along with the Bernanke BULLSHIT and the Wall Street and Real Estate BULLSHIT and looks at the ACTUAL PERCENTAGE OF WORKING AGE POPULATION EMPLOYMENT data of about 59% and realizes we are in a FUCKING DEPRESSION!

The fact that a few liars at the top have gamed the system and the laws to create this world class clusterfuck IS NOT RELEVANT TO REALITY.




H E D G E H O G's picture

UP ARROW for you 'GAAP! Welcome, and thanks for the spot on analytics. We need more people to espouse the total BULLSHIT that all of our government agencies in particular shovel out to the sheeple, and especially the bungling, bureaucratic BULLSHIT from our great "omniknowledgeable" politicos in Washington try and snake oil over us!  Time to burn it all down and start again. This Minority rules shit has to stop.

GAAPpreNixon's picture

Thanks Hedge,

Our "good" government loves to play Whack-A-mole with absolutely every single data point that says:

DEPRESSION 2007-201?



rsnoble's picture

Society collapse enroute. Long fly spray.

tango's picture

And it's all so freaking predictable.  The more regulations they pass, the more they need to pass since the last ones accomplished nothing.  The more debt they create the more they have to create in order to "get things right again".  The more they promise the more they have to promise just to keep up.  The more liberties that disappear the more that have to disappear for the "common good".   Like I said, almost like clockwork.

Widowmaker's picture

"...the markets that were goosed by the trillions that the Fed handed to its cronies."

End of article.


q99x2's picture

The wealthy made the IRS give them so many breaks that nobody has to pay taxes these days. Also, the irs and fbi staff has been downsized. Looks to me like a black budget is running things now and the entire economy is phoney.

AmCockerSpaniel's picture

It was not the IRS, but the politicians that took their money (PAC's) that gave them all those tax breaks.

Roosting Chicken's picture

Wasn't the size of the IRS massively increased a couple of years ago to prepare for Obamacare?

Shizzmoney's picture

The FBI may even have to furlough ppl if we go over the cliff.

I'm guessing the first employees they furlough will be their "white collar crime" division, which according to Bill Black, was gutted after 9/11 (in favor of our govt's "Monitor Muslims" campaign).

tango's picture

Well, someone paid about $1.5 T in income tax (not counting payroll tax) the past year.  Maybe you didn't pay anything but we forked over about $59,000. I'm not sure where you heard that "nobody has to pay taxes today" but I'd definitely check your source.

overmedicatedundersexed's picture

political agenda of small business, you mean survival agenda..anyone owning a business not connected to .gov is in real trouble..some how the author seems upset that is the case, as if obuma had nothing to do with if the economy is above the .gov assault..if that is not the case how about a clarification of your point.

Western's picture

The ultra-rich don't have salaries.


They don't even have bank accounts, and if they do, they are not American in origin nor is their fortune in America.


I guess when you are raised with 18 years of indoctrination (it's not education, if you think you are getting "education" in K-12... well.. LOL), it isn't very easy to accept new ideas that conflict with your entire body mind and spirit.


If I tell an average sheep "the ultra rich are above this system, they cannot be touched by any form of government, financially or judicially" I would get a violent response of denial.


Why does everyone have such low self esteem that they can't bear to listen to someone say something other than the daily news.

darteaus's picture


You set up a "Presidential Library", and all your travel, meals, car, clothing, cell phone, etc. is deducted as an expense for the "non-profit".  Set your house up as a "remote conference center."

Why, you may only need to pay yourself $80K for pocket cash!

tango's picture

You inadvertently made a good point.   The law was not designed for the super-rich without incomes or taxable assets. (A little thinking would have led you to the same conclusion.)  It was for the productive sector still remaining in CA, those who have finally made it after years of hard work.  The ultra-rich probably supported the tax since it doesn't affect the Kennedys, Kerrys, Corzines, Govenator, Gates, etc

In free or semi-free societies there will always be an ultra-rich class by definition (those who are far better off than the rest of the population). The assault by CA is NOT on them.

Western's picture

fuck you, that's a deftly woven strawman you've set.

hedge your future's picture

"It's easier to fool people than to convince them they have been fooled".

Body of Lies's picture

"Fool me once, shame on you; fool me twice, shame on me" ... Fool me for 99 years and I'll call you FED.

Body of Lies's picture

"A fool who admits to being one is one no longer"

Sambo's picture

The ultra rich know how to manipulate the flow of money & goods in the world.

It means they understand more than anyone how to work the currency markets, precious metals, certain commodities and international real estate.

and as you rightly mentioned, they are above the law & govt anytime, anywhere without exception.

Shizzmoney's picture

I still maintain that US is the Most Free Country on Earth........

..................................for white, non-Muslim millionaires.

Body of Lies's picture

So, tell me, how did you come up with this distinction? Muslim millionaires are a impacted class? Black and Hispanic millionaires aren't free?

urwright's picture

so tell me how this info is not designed for a trading person/bot?

who does anything in the real world that matters, could use this info to better their position in the real world

the title of said article has the words small business and political in it while the only agenda of the article is to manipulate something that in reality has nothing to do with either

any naggers awake yet?