Small Business Apocalypse Or Political Vendetta?

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The National Federation of Independent Business tried to shock the world with its report that small-business owner optimism plunged 5.6 points to 87.5%—below the 87.8% of the apocalyptic post-Lehman November 2008. A huge setback; small businesses are the job creating machine of the economy. “Something bad happened, and it wasn’t Sandy,” said NFIB chief economist Bill Dunkelberg. “It was the election.”

Small-business Optimism took a nasty hit during the financial crisis—and hasn’t recovered yet. When NFIB started the monthly surveys in 1986, it set the level at 100. Optimism would drop into the 90s then bounce back above 100. From late 2003 through 2004, peaks approached 110. But in 2005, Optimism faded. It dipped below 90 for the first time in March, 2008, as Bear Stearns blew up. By September, it was back at 92.9, the high for the year. Despite Lehman’s collapse.

Small-business owners apparently liked that Wall Street got clobbered. As markets nosedived, however, optimism followed. In October 2008, it dropped 5.4 points to 87.8, rose a smidgen in November, then descended to its low of 81.0 in March, 2009.

Recovery of small-business Optimism was only slight, unlike the markets that were goosed by the trillions that the Fed handed to its cronies. Small businesses got no more than crumbs. By April 2010, Optimism ventured above 90, then dropped again. In February, 2011, it reached a post-crisis high of 94.5, dropped again, hit that high once more in April, 2012, then dropped and finally hit 87.5% in November. A tough slog.

The most significant factor in November’s plunge?  “The expectation that future business conditions will be worse than current ones,” Dunkelberg explained, the Outlook for General Business Conditions having crashed from +2% to -35%—worse than anything during the crisis. A “poisonous climate for investment and expansion,” Dunkelberg said.

Problems were lurking everywhere, such as inventories that were too high, but some sub-indices, particularly for “actual” sales and earnings, weren’t all bad, given the debacle of the post-crisis years. Credit was plentiful. Actual and planned job openings continued to tick up, as did hiring plans. Bad news for workers though: planned compensation has been dropping this year, after a feeble recovery from crisis lows.

In this manner, the details, graphs, and tables of the report don’t paint a picture of the sudden apocalypse that the headline number promised—but of a long-term depression that started in 2005 and has improved only a few notches since the trough of the crisis! All in an economy whose growth is “lumpy.”

But what jumps out already in the introduction is a political agenda rather than objective interpretation of data: “Between the looming ‘fiscal cliff,’ the promise of higher healthcare costs, and the endless onslaught of new regulations, owners have found themselves in a state of pessimism. We are forced to ask: is this the new normal?” So who are these “owners,” and who is “we?”

A lobbying and advocacy organization with offices in Washington DC and all state capitals, NFIB claims to be “nonpartisan” despite its support for Republican candidates. Its PAC, the SAFE Trust (Save America’s Free Enterprise Trust), is “the most powerful and effective small business political action committee in the country.” Among NFIB’s many, often laudable, causes was its fierce opposition to the Patient Protection and Affordable Care Act, or Obama-care; it joined 26 states in the lawsuit that challenged its constitutionality. And lost when the Court upheld most provisions.

With 350,000 members—of the 6 – 30 million small businesses in the US, depending on who is being counted—the organization represents between 1.2% and 5.8% of all small-business owners. These members received the surveys that would lead to the report. Of the 3,938 responses, 733 were deemed “useable.” They represented companies ranging from one-employee operations (10%) to companies with more than 40 employees (7%).

The data collected from the “useable” responses was further trimmed by excluding the results from the “Sandy States,” namely “NJ, DE, NC, DC, VA, WV, MD, MA, CT, and eastern portions of PA and NY.” Even though there were “no significant differences” in states impacted by Sandy—capital spending plans were “slightly higher,” labor force indicators “slightly worse,” etc.—the report comes to the conclusion that the decline in Optimism wasn’t related to Sandy but “the resolution of the election.” And it used the trimmed and manipulated results to lash out against President Obama.

“The ‘war’ on success is now public policy as the President insists on higher tax rates for the ‘rich,’ those making $250,000 or more,” Dunkelberg states. “He continues to obfuscate by claiming that only 3% of small-business owners will be impacted, as if even those are not a concern.” Hence, the sudden and apocalyptic post-election decline in small-business optimism. But the long shadow of a political agenda darkens the validity of the data—just when we need accurate data the most.

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  1 comment for “Small Business Apocalypse Or Political Vendetta?

  1. Rik
    December 12, 2012 at 7:24 am

    Small busines has a real problem. They are depending mainly on 'normal' people spending and those do not do very well.

    Underlying problem is that probably a majority of people know that we are in a crisis and the measures government are taking are unlikley to work. Furthermore that 10% deficits and constantly rising debtlevels are unsustainable.
    I truly belive that most people know there will have to be substantial cuts. But with rising tax also seen as cuts, the main problem is simply who will take up the bill and pay for it.
    Probably all that have no alternatives (like packing their things and move abroad). The subsequent question is how to split the bill.

    In that respect for small businessowners that are usually decades stuck with an investment Obama is a pretty bad thing. Simply who will pick up the bill for all this fair stuff? Looks pretty unsustainable but what is next? Summarised a lousy outlook with a lot of volatility (aka downside risk, as that is mainly looked at). No climate to invest.
    Allthough the whole political class like basically to increase government spending only on which things they want it is different. Simply no climate for long term investors. Probably the biggest mistake in all this QE, stimulus, NGDP, LTROs, temporary VAT increases, E-rescue vehicles, keep civil servants as there are no other jobs for them anyway stuff. All money used goes to other things than long term real investors and hardly anything is dripping down.

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