Wednesday, January 15, 2014

Small Business Survey Upbeat (excerpt)

I’m sure that Fed officials will closely examine the latest sales reports and conclude that they add weight to the evidence showing better economic growth. So they should give less weight to December’s surprisingly weak employment report. That doesn’t mean they will taper some more at the January 28-29 meeting of the FOMC. But they might signal that they will probably vote for another round of cuts in their bond purchases at the March 18-19 meeting.

The members of the FOMC might feel even better about the labor market and the economy if they look at December’s NFIB Small Business survey. Consider the following:

(1) More hiring and job openings. The survey shows that the outlook for the labor market is improving. The monthly data are very volatile, so I smooth them with 12-month averages. They show that the percent of firms expecting to increase employment rose to 6.3% in December. That may not seem like much, but it is the highest reading since October 2008.

Even more encouraging is that the percentage of firms with one or more job openings rose to 23%, the highest since January 2008. That’s up from the most recent cyclical low of 9% during November 2010.

(2) More capital-spending plans. Another upbeat reading from the survey is that 24% of firms have capital-spending plans over the next three to six months, the highest level since November 2008. Those capital-spending plans are highly correlated with the percent of firms reporting that earnings were higher minus those reporting that they were lower over the past three months. The up/down balance of earnings has recently rebounded back close to the June 2012 cyclical high, and is consistent with more upside to capital-spending plans by small businesses.

(3) Better sales, but too much government. From October 2008 through July 2012, the #1 problem reported by small business owners was poor sales. The percent reporting this as their #1 problem fell to 16.2% in December (based on the six-month average), the lowest reading since July 2008. Now the #1 problem according to the NFIB survey is government regulation (21.7%), followed by taxes (20.7%). In other words, the economy is improving for small businesses, but Big Government is a drag for them.

Today's Morning Briefing: Picking Up Steam. (1) Business sales growing at slow pace in current dollars, at faster pace adjusted for inflation. (2) Retail sales surprisingly strong during Q4. (3) Q4 GDP now looking to be up 3%-4%. (4) Fed should give less weight to December’s weak jobs report, but hold off next tapering step ‘til March. (5) Small business survey confirms improving labor market. (6) Small business owners have more capital-spending plans. (7) NFIB survey shows that Big Government is the #1 problem. (8) Focus on market-weight-rated S&P 500 Retailers. (More for subscribers.)

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