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First Cut: NFIB Small Business Optimism Index falls to lowest since October 2016; size of one-month decline a record

The NFIB Small Business Optimism Index for March was released a week earlier than normal (usually the second Tuesday of the month). The index fell 8.1 points to 96.4 in March. It was the lowest since 94.9 in October 2016. The report noted it was the largest one-month decline in the series history. It also said, “The latest survey showed 92% of small employers are negatively impacted by the outbreak and about half of small employers said they can survive for no more than two months under the current business conditions.” Some of the data may pre-date efforts to help businesses with fiscal stimulus and financing assistance. However, that does not change that small businesses have taken a severe blow and face exceptional challenges in surviving the COVID-19 pandemic and the necessary public health measures to contain it. It is likely that the index will trend even lower in April as the cumulative effects of closures mount.

Nine of the ten index components were down, some markedly so. The one that was up was current inventories which rose 2 points to -2%. This was no more than a normal month-to-month change and probably reflected stocks remaining on shelves.

The largest decline was in expectations for higher sales which plunged 31 points (a record) to -12% in March and its lowest since -12% in April 2009.  There was also a big drop in expectations for the economy to improve by 17 points to 5%, its lowest since -7% in October 2016. The component for now is a good time to expand fell 13 points to 13%, its lowest 11% in November 2016. Both present conditions and the outlook have taken a beating in the past month.

The grim reversal was reflected in the labor market where plans to increase employment dropped 12 points to 9% in March, its lowest since 9% in August 2016. Current job openings dipped 3 points to 35%, a reading which isn’t far off levels seen in when a recession was anticipated August and September 2019. However, even if a qualified applicant presented him/herself, it is doubtful that a business would be willing to hire right now.

In the case where a business might actually fill an open spot, qualified applicants are the most plentiful they have been in two years with the March reading at 47%, and actual compensation has eased a bit with that index at 31% in March after 36% in February.

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