November 2018 Small Business Optimism

Small business optimism is starting to diminish according to the most recent data from the National Federation of Independent Business.  For the past two years, this has been one of the strongest trending indicators Atlas follows, but it is starting to show signs of stress.  For instance, this indicator has declined for three consecutive months and is now 2.5 percent lower on a year-over-year basis.

November’s softness was pervasive.  Eight of the ten components declined on a net basis, and the other two went unchanged.  Expectations for an improving economy dropped from 33 percent to just 22 percent. Those anticipating higher sales on an inflation-adjusted basis declined four percentage points to 26 percent, and job openings fell a similar amount, reaching 34 percent. Both inventory categories each fell three percentage points as plans to increase supply hit just two percent, and a net minus five percent believe they have adequate stock on their shelves.  Twenty-nine percent believe now is a good time to expand and have plans to make capital outlays as each category dropped one percentage point.  Earnings trends are struggling with a net minus four percent reading, also falling one percentage point.  Finally, plans to increase employment held steady as did reports on expected credit conditions.

Small business optimism soared after the last presidential election, but the enthusiasm is on hold for the time being.  Something has Main Street reconsidering their expectations about the future.  However, they are not indicating a major reversal of fortune; instead, they show concern about the pace of improvement (i.e., economic deceleration).