Guest Post: NFIB - Small Businesses Don't Agree With BLS

Tyler Durden's picture

Submitted by Lance Roberts of StreetTalk Live,

Since the release of the most recent BLS Employment Situation Report, which showed an astounding drop in the unemployment rate, I have spent a good bit of time dissecting the release and discussing why the real unemployment rate is really between 17% and 22% depending on how you calculate it.  (See Here and Here)  However, today's release of the September NFIB Small Business Survey shows the extent to which the current BLS employment calculation method may have detached from reality.

From the NFIB report: "September was another month of low expectations and pessimism for the small-business community, with the NFIB Small Business Optimism Index losing 0.1 points and falling to 92.8. The recession-level reading was pulled down by a deterioration in labor market indicators, with job creation plans plunging 6 points, job openings falling one point and more firms reporting decreases in employment than those reporting increases in employment. Since the commencement of NFIB’s monthly surveys in 1986, the Index has been below 93.0 a total of 56 times; 32 of which have occurred since the recovery began in June 2009."



The detachment between the real economy, and that reported by the government, continues to exasperate the best laid plans of the Department of Central Planning (aka the Fed).  As reported the NFIB small business survey has remained mired at recessionary levels since statistical end of the last recession in 2009.



The ongoing problem remains "poor sales" which is the driver for all other business actions from increased capital expenditures to future employment.  From the report: "Weak sales continue to be an albatross for the small-business community. The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months was unchanged at a negative 13 percent, cementing the 17 point decline since April and affirming weak GDP growth for the second quarter. Twenty-one (21) percent still cite weak sales as their top business problem—historically high, but down from the record 34 percent reached in March 2010. Seasonally unadjusted, 23 percent of all owners reported higher sales (last three months compared to prior three months, down 1 point) and 30 percent reported lower sales (up 1 point). Consumer spending remains weak and high energy costs continue to 'tax' consumer disposable income. The net percent of owners expecting higher real sales was unchanged at one percent of all owners (seasonally adjusted), down 11 points from the year high of net 12 percent in February. The weak reading is unlikely to trigger orders for new inventory or business expansion. Not seasonally adjusted, 24 percent expect improvement over the next three months (down 4 points) and 31 percent expect declines (up 3 points)."

The chart below shows capital expenditure plans versus future expectations about the economy.  The importance here is that companies are primarily spending on maintenance of plants, property and equipment rather than expansion and upgrades.  In the most recent report only 34% reported spending on new equipment which was down 7 points from August.  Only 16% acquired vehicles - a decline of 5 points, and just 14% improved or expanded facilities which remained unchanged from the previous report.  Overall, there was a substantial reduction in capital spending activity with the percent of owners planning capital outlays in the next three to six months falling 3 points to 21%.  



If employment was surging as reported by the BLS in the last month these numbers should be rising as employers expend capital to boost production.   Furthermore, if business were hiring as strongly as reported then the number of business owners who think that this is a "good time to expand" their businesses should be much higher than 7% which is just 50% of where it stood just prior to the last recession.  

The disconnect between the BLS's employment survey which showed an increase of 574,000 non-farm payrolls in September, 114,000 after revisions, versus the NFIB which showed fewer jobs in September only adds further fuel to the debate.  If the BLS report was correct then the NFIB report should be showing an increase in employment.  However, the survey showed that not only have firms not hired in the last month but only 10% plan to increase employment at their firm in the next three months.  This is down a full 3 points from the last report while 11% plan employment reductions, 2 points higher than last month, as well.  On a seasonally adjusted the net percent of owners planning to create new jobs fell 6 points to 4% which is historically a very weak reading especially during an economic recovery.

Essentially, current levels of hiring are just keeping up with population growth, but not exceeding it.  As discussed recently - a look at full-time employment relative to civilian the population shows that this is indeed the case.  "Unlike the traditional employment metrics used by the BLS which have been adjusted to obfuscate the real employment situation - the level of full-time employment relative to the total population accounts for the movements into, and out of, the workforce. This calculation provides a better barometer of the economic health of the country."  



The reality is that by this measure the real employment situation is running close to its worst levels since 1968. 

There is really not much wonder as to why there has been such a lash back against the recent BLS jobs report over the last few days.  This time, however, it has picked up high profile figures such as GE's former boss Jack Welch who tweeted just after the release on Friday: "Unbelievable jobs numbers ... these Chicago guys will do anything ... can't debate so change numbers" and Ken Langone. founder of Home Depot, also chimed in on CNBC saying: "Damn it, these numbers don't make sense."


However, it is not just the NFIB report that is showing lower levels of job creation that run counter to that of the BLS.  Each month we update the STA Composite Employment Index which is an index of the employment subcomponents of the Chicago Fed National Activity Index, Chicago ISM, several regional Fed manufacturing indexes, ISM surveys and the NFIB report.  As you can clearly see in the chart below not only has the 4-month average of the employment index deteriorated in the last month - it has fallen for six months straight from its peak in March of 26.46 to 18.42 today.  A reading below 20 has normally been indicative of a recessionary economy.



No matter how you look at the data there is a clear disconnect between the BLS report and economic realities.  From the NFIB's point view it is "economic uncertainty" that weighs on business owners and keeps them on the defensive.  The actions by the Federal Reserve to buy bonds and inject liquidity into the financial system does not solve the problem of "poor sales", reduce regulations that strangle growth or solve the "fiscal cliff" issues that threaten business profitability by the end of the year.   

Bill Dunkleberg from the NFIB sums it up best:  "Politicians have little understanding of the costs their actions impose on the private sector.  'Frequent changes in the tax code' should not consistently rank in the top 15 problems that owners face."

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The Alarmist's picture

Gee, ya think? People in small business actually work for a living.

idea_hamster's picture

"The actions by the Fed[ do] not solve the problem of "poor sales", reduce regulations that strangle growth or solve the "fiscal cliff" issues that threaten business profitability"

Those MFs are going to wind up in Gitmo if they keep up that kind of crap. Why can't those jackasses and the small biz owners get with the program?!

knukles's picture

Who cares about what small business people think... they didn't build it on their own, anyway.

Fuck 'em.
Harder, harder

NewThor's picture

Did I miss Tyler's article on today's 140 stock flash crash?


francis_sawyer's picture

Yeah ~ It was the TUESDAY HUMOR post...

jaffa's picture

You don't need business credit for a home based business. You need personal business. The only time business credit is an issue is if it is not a home based business and you have assets such as equipment, inventory etc. Otherwise good personal credit is all you need to start a small home based business. I know I have done both.
Andrew Weber

zorba THE GREEK's picture

I called the BLS to question them about their employment figures and

was informed that they were aware of the importance of an impartial

report at a time so critical to upcoming elections. They told me that

in order to get all the data collected and the numbers checked and

and rechecked to insure absolute accuracy, they hired 114,000

temporary workers to get the job done right. I'm now satisfied that

the BLS didn't fudge the numbers and that my suspicions were unfounded.


hannah's picture

no they hired 600,000 between the ages of 18-25 for one month...

JPM Hater001's picture

Number 7 of the top 15 problems is lack of cottage cheese in the congressional cafeteria.

hannah's picture

no matter how you look at the data....obama will stand at a podium and state that he did in fact reduce unemployment to under 8% and no one here will be there to call him on it...fucking give UP. we know the number is fake but the same people are still going to vote for him regardless.

samsara's picture

I have the same respect for him as you I believe, but only 3% said bullshit when bush said WMDs, and Yellow Cake, and patriot act too.

10 guys walk past you and smack you in the head, Don't get mad just at the last one.....

Say bullshit on Obama now gets you on TV, but back in 2003 when the Dixie Chicks said they were embarrassed by Bush they got banned.

Does anyone remember what the reaction you got in 2003ish if you said the war was for oil, and the WMDs were bullshit? USA, USA, USA.

The public is fickle.

knightowl77's picture

No it is just starting to wake up....a few are anyway....

However many of the idiots in this country love Obummer for doing exactly what they hated bush doing

whoisjohngalt11's picture

Great article thanx ..loved the video BTW never get tired of Ken...

blu's picture

"reduce regulations that strangle growth"

Rivers on fire. Bitchez.

hedgehog9999's picture

I don't know why this is even being debated. It has been obvious and clear for several years now the BLS has been fudging numbers to appear palatable from a political perspective for the masses, the most blatant one being the inflation numbers but also the uemployment numbers.  And how convenient this happenned just a couple of weeks or so from the election.

I am not a fan of Jack Welch but he's right on his views on those numbers. And for anybody that has any doubts just look at the indexes as they all are on weekly sale signals just in time for the election. The market has spoken on this clown who promised change 4 years ago. But I am not a fan of the other guy either just a slim hope for change, and that is what this election is all about.

We are about 15 or so SPX points from a monthly sales signal and we'll see how the manipulation will work in the next two weeks...



samsara's picture

I think Jack is just embarrassed/mad that his class(The people who control the numbers) are getting this sloppy and "showing their slips" too much that even the sheeple won't believe it anymore. He knows that the illusion is what matters and I think he thinks they are blowing it.

He was on the inside a long time and knows the game.
He's not shocked, he's embarrassed.

hedgehog9999's picture

That's why I don't like him, he jumped ship when he saw the writing on the wall and passed the batton to his liutenant. He is not that great just, presided during a period of easy money. Many others could have led GE that well. He had a very capable set of liutetenants and a bank under his belt with the financial arm of GE. They might have gone bankrupt had it not been for the kind government infusions of cash they got.

And you are right he's a perceptions and image guy. Obumer and his team have been extremely sloppy inclluding the FED. This BLS bs and the QEnfiniti are just some examples of that.....

orangegeek's picture

As these markets drop - today may be the start - the quality of information that comes from reliable institutions will magically become more and more suspect.


The SP500 appears to have topped.


Expect more "disconnected reports" as we slide back toward a 700 SP500 and below.

francis_sawyer's picture

Weren't you here back in August breathlessly telling us all that your magic elliott waves had topped back then?... When are Prechter & Neely going to come out with a few chapters on market manipulation?... Oh no ~ that NEVER happens in magic EW voodoo world, does it?...

Curt W's picture

All the part-time jobs are people standing on street corners waving a sign for republicans or democrats.

Watch the number crash again on the first friday of Dec.

sosoome's picture

What do small businesses know...they didn't build that.

JuliaS's picture

Name one gov't number that isn't fudged. Any number.

blu's picture

There are 50 states.

That's all I've got.

JuliaS's picture

Did you count Israel?

QQQBall's picture

I was asked to do a job on a 50,000 SF office bldg for $4,500. I would have gotten $6,500 in 1989. I am getting beat on other bids. I know I am one guy in one area, but I rarely get beat on bids or asked to work "cheap."  I have almost 30 yrs experience, but my competitors are cutting prices and services are being priced at the margin.  When this has happened in the past, the economy has gotten weaker. My neighbor is a plumber who always has work - he does remodels and new construction, no clogged drains for him - he has been slow for over a month. He and his son work together, so they do not need much to stay really busy.

I am not on the UE or PT rolls, but fees are definitely softening and the work flow is not as strong.

I want to buy a used MBZ and a retirement home in NV. I am not in a hurry.

news printer's picture

They tried to make me go to rehab, I said, "No, no, no"

Yes, I've been black but when I come back you'll know, know, know

I ain't got the time and if my daddy thinks I'm fine

He's tried to make me go to rehab, I won't go, go, go

Coast Watcher's picture

Krudman is desperately trying to defend the jobs report in his latest column, labeling the skeptics "BLS truthers" and calling it "madness."

God, he is such a tool. No wonder he wears a beard. If he shaved, he'd be too tempted to cut his own throat every morning.

miker's picture

I don't think the jobs fudge was as political (for Obama) as it was to counter all the negative news.  I think the real jobs numbers were horrible and Timmy and crew knew they had to change that.  All this stuff is being manipulated and as it gets worse, the manipulation grows. 

It's fucking crazy-making because those who have insight, or a good gut feeling of what is really going on are being bombarded with all this "positive" evidence.  My wife thinks I'm a fucking idiot and refuses to talk to me on the economy.  She is like so many others that would rather have nice/neat answers and be in denial then trust their instincts.

THis thing is going to get ugly.  The government is gong to continue to lie until it becomes so obvious they will have to change.

Nobody For President's picture

Actually, for a lot of unemployed, especially the ones over 50, things are already ugly.

And they are gonna get worse before they get worse.

Westcoastliberal's picture

I don't buy the BLS numbers either.  A couple of family members have found lower-paid jobs but nothing exciting.  It took a long time for them.  Sales are about as slow if not slower than over the past few months.  No one has any money and sales suck for everyone.  What used to work now doesn't.

Bobbyrib's picture

The man who brought Home Depot shareholders Bob Nardelli talks about business. I can't stand LanGOON.

Riquin's picture

I do not know about other states but Florida with Rick Scott as governor is moving. I just go and you see on the roads trucks with parts, building materials and I see housing constructions in several places. So we are beginning to move but we have a republican governor and he is good!!

1CQ's picture

Right on in terms of BLS data and reality.  But Lance still believes in the lesser of two evils (as if there is a difference) being able to "fix" things.  Been listening to lance for years on the markets, politics, economy and history...he's usually spot on but when it comes to gubmint he is red vs blue through and through.  Claims he is a proponent of the Austrian school and even agrees with Ron Paul on number of issues but "RP is unelectable" so Lance runs with the bloods.


Off subject but Lance, as adept as you are, how is your boy O'Romneya going to fix the economy?  BLS, Fed, (non)-free markets are part of a system that is unfixable!