BMI View: Data from the National Federation of Independent Business (NFIB) suggest that the small businesses are turning increasingly optimistic, which may drive an uptick in hiring, buoying the labour market in the months ahead. That said, small businesses' general outlook remains somewhat weak, with potential for political gridlock in Washington to shake business confidence as it has done in recent years.
The National Federation o f Independent Business (NFIB) small business optimism index in July posted one of its strongest readings of the post-financial crisis period, underscoring our view that a broad-based recovery in the US economy is accelerating. The index came in at 94.1, ahead of June's reading of 93.5, and many of the sub-components of the survey suggest that US small businesses may contribute increasingly to job creation and economic growth over the next few months.
|US - NFIB Small Business Optimism Index|
The hiring plans index came in at 9.0, the second - strongest reading since early 2008, leading us to believe hiring could pick up over the next several months. Since 2005 small business employment (defined as businesses with fewer than 50 employees) has accounted for 34.6% of total payroll employment, but as small businesses have not shared in the recovery as fully as their medium and large counterparts, job creation in this area has lagged.
|Stronger Job Creation Ahead|
|US - NFIB Small Business Hiring Plans|
For much of the post-financial crisis period, small business job creation has trailed total private payroll employment growth. We believe that the strong reading from the NFIB survey suggests that this situation may soon reverse, indicating that small businesses may increasingly drive job creation.
|Small Business Hiring Has Been Lagging|
|US - Payroll Employment, % chg y-o-y|
One potential challenge for US small businesses could be rising domestic interest rates as markets increasingly price in an end to the Federal Reserve's current programme of quantitative easing ( see 'Yields Breaking Higher', August 15 ). That said, survey respondents indicated that their ability to access credit when needed is around pre-crisis levels, suggesting that a moderate rise in interest rates should not fundamentally alter the outlook over the medium term.
|Credit Access Not A Problem|
|US - NFIB Availability Of Credit|
Indeed, more and more businesses are reporting that their primary problems are taxes and government regulation, rather than sales or credit availability, signalling that economic pressures on small businesses are waning.
|Poor Economy Less Of a Concern|
|US - NFIB "What Is Your Business's Main Concern?"|
That said, we acknowledge that small businesses are more pessimistic about the general outlook for the economy. It seems, in particular, that political gridlock in Washington has weighed heavily on the overall business outlook. While the May, June, and July readings represented marked improvement from earlier in the year, the index remains, broadly speaking, in a downtrend. Washington's temporary inability to come to a debt ceiling deal (summer 2011) and then the failure to come to long-term budget agreement that ended in the budget sequester (November 2012-March 2013) drove this index lower than at any point during the financial crisis.
|But General Outlook Still Poor|
|US - NFIB General Business Outlook|