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First Cut: Anticipation of an economic recovery keeps NFIB Small Business Optimism Index from falling too steeply in April

The NFIB Small Business Optimism Index fell 5.5 points to 90.9 in April from 96.4 in March and was the lowest since 90.0 in March 2013. Nine of the 10 index components were down and many by a large margin. However, the index was saved from falling back to a recessionary reading by a 24 point jump in the index anticipating the economy to improve in the near future.

Survey respondents were more concerned about the immediate outlook with the uncertainty index down 5 points to 75 in April. If businesses see a light at the end of the pandemic tunnel, it is still distant.

The component for expect-the-economy-to-improve reversed sharply and rose to 29% in April and contributed 40% to the change in the overall index. It continued the see-saw of the last few months after it fell to 5% in March from 22% in February when it rose from 14% in January. Small businesses have had a hard time assessing the direction of the economy during the COVID-19 pandemic and the impacts of efforts to control it spread. The increase in April likely reflects a sense of relief in the fiscal response to provide relief to businesses and the Fed’s efforts to ensure liquidity and smooth market functioning.

In contrast, the largest negative among the data components was expect-real-sales-higher which fell 30 points to -42% in April, a contribution of 50% of the total and a low for this series. Even with anticipation of an improvement on the economy on the horizon, small businesses are expecting sales will take time to rebound.

The NFIB released its data on jobs on Thursday, May 14. For those numbers, please see the Whetstone Analysis “On the radar: NFIB small business jobs report show hiring grinding toward a halt in April”.

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