Friday, June 11, 2021
While U.S. economic conditions have certainly improved, and earnings momentum for S&P 500 companies has been strong, U.S. small business conditions remain somewhat less stable. Notably, the NFIB Small Business Optimism Index has improved since last year (99.6 in May, up from the 90.9 low in April 2020), and according to the Federal Reserve, perhaps less than 200,000 U.S. small businesses failed due to the pandemic last year. Both figures are likely better than many had expected during the height of 2020’s economic stress. However, the aggregate economic foundation of small business in this country probably has a ways to go before it fully recovers. This may create more instability at this point in the recovery than is typically seen. The message here is that while most high-frequency economic data indeed looks good, we should remain mindful of still unstable areas of the economy that may not show up in many data sets.
Fortunately, the National Federation of Independent Business (NFIB) provides economic and market participants with various survey results that deal with specific elements of small business operation. The NFIB not only surveys optimism, but they also compile data on hiring plans, compensation plans, capex plans, quality of labor, and sales expectations…among other items. Review of these data series indicates to us that there is still work left to do to get U.S. small businesses back on solid footing. As we can see from the LPL Chart of the Day below, business owners remain somewhat hesitant about their capital expenditure plans while hiring plans have trended more firmly with optimism. Still, other data tells us that NFIB survey respondents are cautious as to whether now is a good time to expand their business. Meanwhile, the surveys show that small business owners are indeed having a hard time finding quality labor and the cost of labor is rising, thus making job openings hard to fill.
“Recent NFIB data tells us that small businesses have gotten off the floor following the pandemic punch, but the black eye on a formidable part of the U.S. economy still lingers. With post-COVID economic re-openings in full swing, we remain hopeful that small businesses will soon recover enough to add that final boost to domestic conditions,” explained LPL Financial Director of Research Marc Zabicki.
While small business conditions will be something to watch carefully through 2021 and into next year, we believe pent-up consumer demand could bode well for many establishments. We are expecting a robust summer traveling season that could have consumers readily opening their wallets. This may translate into further improvements in the NFIB optimism trend, provided that business owners find a solution to their current labor struggles.
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All index data from Bloomberg.
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