With all hopes and dreams of economic renaissance in America pinned on small businesses (see ADP's recent gains [7]), today's data from the NFIB will strike fear in the heart of the wealth-effect-creating Fed. The NFIB small business optimism index disappointed expectations in June (94.1 vs. consensus 98.5), falling to its lowest level since March 2014 - the biggest drop since 2012. All components were weaker but most notably hiring and plans to raise worker compensation tumbled.
[8]
As Goldman details,
All components were weaker, with the largest declines seen in earnings trends (-10pt to -17) and plans to increase inventories (-8pt to -4).
The net percent of firms raising worker compensation (-4pt to +21) and planning to raise worker compensation (-3pt to +11) reached their lowest levels so far this year.
Forward-looking capex plans also declined (-2pt to +23) to its lowest level this year. The index has trended lower since reaching its post-recession high last December.
However, it gets worse. As Yahoo reports, American CFO's are worried, according to Deloitte's second quarter 'CFO Signals' survey. [9]
The Chief Financial Officers surveyed by Deloitte are particularly worried about earnings and revenue growth, concerned about cyber security and overall less positive than anytime since the third quarter of 2013.
[10]
Three factors are driving the skepticism, according to Sanford Cockrell III, global leader of Deloitte's CFO program and a national managing partner at the firm: concerns about rising interest rates, a potential slowdown in the U.S. economy, and 'macro' worries about the global economy. Notably, the survey was conducted in late May, before the China stock market meltdown and fears of 'Grexit' rattled global markets, albeit briefly.
"It would be interesting if we asked the same questions today around the global economy, [the answers] would shift," Cockrell says, noting CFOs are particularly downbeat on the European economy, with only 5% viewing it as "good" and only 30% expecting it to improve much in the next year.
But the "aha moment" in the survey, according to Cockrell, is the combination of big declines in expectations for earnings and revenue, both to the lowest level in the survey's 5-year history. That, in turn, is leading to what he calls "anemic" hiring expectations and "not great" forecasts for capital spending in the coming year.
CFOs are "quite concerned about growth cycles over the next six months to a year," Cockrell says. Just 38% of CFOs express rising optimism, down sharply from last quarter’s 48% and the lowest seen in more than two years.
In addition, the survey found 65% of CFOs believe the U.S. stock market is "overvalued," up from 46% in the prior quarter.
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Not what escape velocity growth is made of...
