The National Federation of Independent Business press release today paints an ominous picture: Hiring Plans Plunge: Small Business Optimism Drops 0.1, Expectations for the Future Remain Low
From the release:
September was another month of low expectations and pessimism for the small-business community, with the NFIB Small Business Optimism Index losing 0.1 points and falling to 92.8. The recession-level reading was pulled down by a deterioration in labor market indicators, with job creation plans plunging 6 points, job openings falling one point and more firms reporting decreases in employment than those reporting increases in employment. Since the commencement of NFIB’s monthly surveys in 1986, the Index has been below 93.0 a total of 56 times; 32 of which have occurred since the recovery began in June 2009.
“The election is just weeks away and essentially a horse-race, and its outcomes would have vastly divergent policy implications,” said NFIB chief economist William Dunkelberg. “Everyone is waiting to see what happens, especially small-business owners who have a lot at stake in the outcome—which could mean higher marginal tax rates and more deficits, OR lower marginal tax rates and less government. Small-business owners are reporting that the political climate is a reason not to expand—second only to the economy, which is only keeping up with population growth. And so, in the meantime, owners are in maintenance mode; spending only where necessary and not hiring, expanding or ordering more inventories until the future becomes more ‘certain.’”
A few comments:
1. This is based on a random sample of 691 NFIB members. Like all surveys and polls, it has some margin of error.
The data is very noisy month to month, and it’s worth noting some positive longterm trends. A year ago, 28% of small businesses reported Poor Sales as their single most important problem, but that fell to 21% in September. That 21% matched two other categories that rose from last year: Taxes and Government Requirements & Red Tape. (As I’ve noted here before, the small businesses I write about are much more concerned with local and state red tape than federal.) As the economy improves, we should see Poor Sales fall even lower on that list.
Likewise, the percentage of small businesses with open positions (17%) is down from its recent peak in May (20%), but it’s still the highest September level since 2008.
2. This report could be read as confirmation of an August prediction from Rajeev Dhawan at the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business: “Anticipation Effect” to Stall Economic Growth Into 2013
3. I have to take issue with one particular phrase in the press release from the NFIB’s chief economist Dunkelberg, with its clear political posturing: “Everyone is waiting to see what happens, especially small-business owners who have a lot at stake in the outcome—which could mean higher marginal tax rates and more deficits [Obama], OR lower marginal tax rates and less government [Romney].”
There’s obviously a great deal of uncertainty right now: the election, the looming “fiscal cliff” of expiring tax cuts and mandated spending cuts, the simmering economic crisis in Europe, concerns about growth in China, and continued turmoil in the Middle East.
But Dunkelberg has created a false dichotomy here. If our dominant concern is deficits and the debt, then we might want to plunge over that so-called “cliff.” If the Bush and Obama tax cuts expire and if we slash spending, we will run the risk of a fresh recession but we will also immediately begin reducing the debt as a percentage of GDP. (Click here to see a graph.)
Conversely, lower marginal tax rates will not adequately address the deficit. Lower taxes are stimulative, but it’s a mistake to say that they will pay for themselves through increased economic activity. We’ve been engaging in massive tax cuts over the last 11 years, and while those have undoubtedly boosted consumer activity, they certainly haven’t juiced our economy enough to pay for themselves.
And as for Dunkelberg’s comment about “less government”: have I missed something? Governor Romney has lately been sounding especially hawkish about building up the military, and he has seemed to back way off of plans to cut Medicare spending. And Social Security hasn’t been debated substantively in this election as it should be. I’m not sure how all this adds up to “less government”, since taking those three budget lines off the table will require increased revenue even if we slash spending elsewhere. If Dunkelberg is simply referring to the likelihood that a Republican administration might marginally cut some federal regulations regarding the environment and the like, he should just say that.