Small business owner optimism moderated last month, according to an updated report from the National Federation of Independent Business (NFIB). Specifically, the headline confidence index fell to 101.4 in November, a slightly larger pullback than analysts anticipated but still well off of the lockdown low hit in April (90.9) and comfortably above the historical average of the past half a century (98.0). Six of the ten main components that make up the sentiment gauge deteriorated in November, including a plunge in reported expectations for the economy to improve. This is likely a reflection of owners’ disappointment with the election outcome along with concerns regarding the winter wave of the coronavirus. Evidence of the latter is found in the sharp decline in reported plans to increase inventories as well as the weaker outlook for near-term earnings trends, which together suggest a concern that the latest pandemic-related activity restrictions and even voluntary efforts by some consumers to stay at home will drag on holiday sales. Such uncertainty, though, has not yet appeared to materially affect small business job creation because reported hiring plans actually picked up in November, as did total job openings.
This should not be too surprising following last week’s employment data deluge that showed us how smaller businesses were responsible for the bulk of the payrolls growth in November. A larger share of surveyed owners also reported that they had raised worker compensation recently, and the highest proportion of 2020 expressed plans for further pay raises in the coming months. Such actions are expected with roughly half of owners continuing to complain about their being “few or no” qualified applicants for the positions they are trying to fill even as the national rate of unemployment remains historically elevated, highlighting just how different this economic downturn is from past recessions. Moreover, the virus remains the key obstacle in the way of a swift economic recovery but good news appears on the horizon with the coming rollout of several vaccines. This will be a critical development for the countless small businesses that are still being forced to shut down or at least severely limit their operations even as many large companies are able to stay open and even thrive in the current environment. The NFIB report’s authors added that “COVID-19 policies have targeted business activity that disproportionately affect small firms. Amazon has not had to close, but restaurants, gyms, small retailers, etc. have had to close for some periods or operate under heavy traffic restrictions. This has been the major source of increased unemployment. Solving this problem will require getting our small business sector back in operation. Amazon is doing just fine. The arrival of effective vaccines will make this far easier to accomplish as would the use of more sensible government policies than those currently used to manage the small business sector.”
Sources: Econoday, NFIB