Small business owner optimism rose in August, according to an updated report from the National Federation of Independent Business (NFIB). Specifically, the headline confidence index climbed to 100.2 last month, much better than the consensus forecast but slightly below the post-lockdown peak hit in June. Seven of the ten main components that make up the sentiment gauge strengthened in August, including a marked improvement in reported earnings trends. Surveyed owners’ outlooks on the economy and inflation-adjusted sales growth moderated last month but job creation still continued to rebound, with both vacant positions and hiring plans rising to the best levels since Q1. Actual employment changes, though, fell last month while reported increases to worker compensation jumped. This makes sense considering that nearly half (46 percent) of surveyed owners cited “few or no” qualified applicants to the job openings they were trying to fill. A separate NFIB poll conducted last month similarly revealed that a third of small business owners feel that the extra $600 per week in unemployment insurance (UI) provided as a part of the initial CARES Act has made it more difficult to hire or re-hire workers. Three percent of owners said they had have already responded by offering a higher wage to encourage workers to come back, and 4 percent even reported they agreed to let some recent hires work reduced hours in order to keep receiving the augmented UI payout.
More generally, even though overall sentiment has improved considerably compared to April many concerns linger for small businesses. Roughly one in five (21 percent) owners in the supplemental NFIB poll, for instance, believe they will be forced to shutter their operations if economic conditions do not improve over the next six months. Further, only 6 percent of respondents feel that business conditions have returned to normal, while over half (52 percent) of owners do not expect activity to completely rebound until 2021, and 20 percent even think a full recovery could take until 2022. Such responses support our earlier argument that the “easy” portion of the economic rebound has already occurred and that the pace of recovery going forward should therefore start to moderate and be more tied to the rate at which customer demand bounces back. With these and other potential headwinds likely to persist for the foreseeable future it should put more pressure on lawmakers to include some additional relief measures for small businesses in the “CARES 2.0” package still working its way through Congress. Moreover, 84 percent of Paycheck Protection Program (PPP) borrowers in the NFIB survey said that they have now used their entire pandemic loan, and almost half (47 percent) anticipate needing additional financial support over the next 12 months. Another reason lawmakers should include more small business relief in the next fiscal package is that the fight against the coronavirus is still not over. Yes the rates of new infections and hospitalizations continue to trend in a favorable direction, but until there is a widely available vaccine there will remain a non-trivial chance of another flare up in the outbreak that brings back the economically devastating lockdowns. These risks have arguably increased now that schools have reopened and temperatures will soon drop (flu season). It is therefore worth reiterating that our progress in the fight against COVID-19 remains the best predictor of how the economic recovery in America will proceed.
Sources: Econoday, NFIB