Economy, Small Business

Economic Data Roundup (01/13/2021)

1/13/21 8:00 AM

Small business owner confidence continued to soften last month, according to an updated report from the National Federation of Independent Business (NFIB). Specifically, the headline optimism index fell by 5.5 points to 95.9 in December, significantly worse than analysts anticipated, the largest monthly decline since April, and the weakest headline reading in over half a year. Nine of the ten main components that make up the sentiment gauge deteriorated in December, including a plunge in reported expectations for the economy and inflation-adjusted profits to improve. This is a continuation (and worsening) of the trends we pointed out in November, and the NFIB report’s authors similarly attributed the broad weakness to owners’ concerns regarding “economic policy in the new administration and the increased spread of COVID-19 that is leading to renewed government mandated business closures.” The researchers also cautioned that the decline in confidence “will impact owner decisions about hiring, inventory investment, and capital spending.”

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Evidence of this is already showing up in the labor component where gauges of total job openings, reported hiring plans, and both current and expected worker compensation trends at small businesses all fell in December to the weakest levels since last summer. The good news is that although it remains uncertain what the regime shift in Washington will mean for small businesses in the years ahead, the bulk of the recent deterioration in sentiment (and general economic activity) can still be attributed to the pandemic. This supports our argument that if the vaccine rollout proceeds smoothly then growth in the hardest hit industries should start to resume in earnest once the various activity restrictions are permanently removed. And as mentioned in our 2021 economic outlook the eventual full reopening of America will include a reopening of the schools, which provide a needed daycare service for many prime age workers. Moreover, labor force participation for adults ages 25 to 44 is lower currently than it was at any period since the financial crisis, whereas participation among many other age groups is already back to pre-COVID levels. This makes sense since the 25 to 44 age cohort is the most likely to have to stay at home and care for children participating in distance learning programs. Once the schools reopen this should free up a lot of labor supply and make it easier for businesses to fill vacancies, in turn keeping the wage component of inflation in check this year.

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Sources: Econoday, NFIB, FRBSL

Post author: Charles Couch

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