January 2019 National Federation of Independent Business

Small business lost more confidence to start 2019 according to the latest data from the National Federation of Independent Business (NFIB).  Their business optimism index declined 3.3 points to 101.2, the lowest reading since November 2016.  Small business owners are growing concerned about the unknown as their Uncertainty Index climbed to 86, the fifth highest reading going all the way back to 1974. 

Just three of the index’s ten components improved.  Plans to make capital outlays edged higher by one percentage point and remains one of the stronger overall readings.  Expectations for credit also inched up by a percentage point. The biggest increase was in the earnings trend, but even it only managed a two percentage point uptick. 

Changes to the downside were much more dramatic.  Job openings and plans to create new jobs fell four and five percentage points respectively.  The number of companies indicating now is a good time to expand also dropped four percentage points.  Plans to increase inventories plummeted seven percentage points as did the number anticipating higher inflation-adjusted sales.  Finally, the big one: the tally for those expecting the economy to improve plummeted ten percentage points. Ouch!

For the past two years or so, this has been one of the most encouraging indicators, but some serious cracks are developing.  Hopefully, some of the recent uncertainties (e.g., the government shutdown and other Beltway bickering) subside and businesses begin feeling more confident again.  Atlas sees this indicator’s change over the past couple of months as worrisome.  The NFIB is now something worth keeping a close eye on because it has reversed course so quickly, perhaps acting as a canary in the coal mine and warning about a change in the current business cycle's trajectory.