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Economy in Brief
U.S. Unemployment Claims Continue on an Uptrend
Initial claims for unemployment insurance filed in the week ended August 6 rose 14,000 to 262,000...
RICS Survey Points to More U.K. Housing Sector Weakness
The survey of housing market conditions in the U.K. continues to show strength in prices versus weakness...
U.S. CPI Unchanged in July with Drop in Energy Prices
Consumer prices were unchanged in July after an outsized 1.3% m/m jump in June...
U.S. Federal Government Budget Deficit Shrinks in July
The U.S. Treasury Department reported a federal budget deficit of $211.1 billion in July...
U.S. Mortgage Applications Rose Slightly in the Latest Week
Mortgage applications increased 0.2% (-62.9% y/y) from one week earlier...
Viewpoints
Commentaries are the opinions of the author and do not reflect the views of Haver Analytics.
by Robert Brusca May 8, 2007
The chart of the main NFIB survey is a telling graphic on the state of the economy. While the index reached its local low in August of 2006 and there is a sort of bounce in train since then (dead-cat bounce?), the index remains locked in the throes of a broad downtrend. This months slippage brings the index that much closer to breaking down the fragile up trend that is an artifact of the broader, more powerful, downtrend range and it asks legitimate questions about growth and the contribution of small business - the key driver of job growth.
We can peruse the details of the report for more clues as to what is weak and why. We present in the table below the net balance measures from the various questions in the NFIB surveys. The final column expresses each of these as a point in the range of values the measure had taken on since 1990. A high reading (say 100%) means the measure is at the top of its range of values for the period the lowest read is 0% and it would signify the weakest reading of the period.
A quick look at column five shows that most values are below 50%, implying that they are below the midpoint of their respective range of values since 1990.
As for recessions, the NFIB does not seem to be a good gauge of those since it did not trough in the last recession but rather in April of 2003 well into recovery.
The report has some interesting features about the economy apart from bearing witness on recession. It tells us that firms are raising prices to a greater than normal degree, net positive responses to the question are in the nearly the 70th percentile; this also seems to be reflected in wages in their 63rd percentile - also above average. Still, firms are increasing employment at an above average pace (57Th percentile) and reporting higher sales Q/Q, 57th percentile.
Firms are downbeat, however, on some key forward-looking aspects: they do not see easing credit conditions. They do not see the economy improving (21 percentile of that range!) and they are below average in seeing real sales rise 6-months out. Consequently firms are not planning capital improvements; those plans are in the bottom 25 percentile of their range.
By the way, I prefer this percent of range approach to the raw net balance figures because the net balance figures across responses have all different characteristics. The percentile measures let us see the position of response relative to past responses instead of Vs the zero or neutral reading. I find this more useful
Around the 50th percentile business conditions are not bad. And most NFIB responses are in the 40% to 60% range. But some are not, and those that are not, are weaker. Seeing bottom 25 percentile responses to the question good time to expand? and planning in capital spending over the next 3 to 6 months? is not a sign of confidence. For now what we have is a still strong labor reading. And NFIB expectations could be wrong. Who is clairvoyant after all? But now these concerns will hold back expansions and only feed the hand to mouth demands. We have seen some improvement in capital spending plans by the firms that report to the durable goods report and maybe this trend will have some positive impact on independent businesses down the road.
For now this is a decidedly downbeat report on the economy.
NFIB | % of range | ||||
Apr-07 | Mar-07 | Feb-07 | Apr-06 | since 1990* | |
INDEX | 96.8 | 97.3 | 98.2 | 98.9 | 33.1% |
% saying | |||||
Firms Expecting | |||||
Credit conditions to ease | -7.0 | -8.0 | -8.0 | -7.0 | 46.2% |
Econ to Improve | -8.0 | -7.0 | -2.0 | -1.0 | 21.3% |
Higher real sales 6 Mo | 14.0 | 14.0 | 17.0 | 22.0 | 42.9% |
Firms Reporting | |||||
Higher Earnings | -19.0 | -15.0 | -19.0 | -21.0 | 46.4% |
Inventories 'too low' | -3.0 | -5.0 | -2.0 | -2.0 | 36.4% |
Good time 2 Expand | 12.0 | 12.0 | 18.0 | 17.0 | 26.1% |
Firms Planning | |||||
To Increase Employ | 13.0 | 12.0 | 13.0 | 17.0 | 57.1% |
To Add Inventories | 3.0 | 3.0 | 3.0 | 2.0 | 40.0% |
Capital expenditures 3-6 mo | 29.0 | 33.0 | 30.0 | 30.0 | 25.0% |
Inflation Issues | |||||
Firms raising | |||||
Average selling prices | 18.0 | 15.0 | 13.0 | 12.0 | 69.4% |
Worker Compensation | 26.0 | 28.0 | 30.0 | 26.0 | 63.6% |
Firms plan to raise | |||||
Average selling price | 24.0 | 22.0 | 23.0 | 24.0 | 59.1% |
Worker Comp | 37.0 | 35.0 | 39.0 | 37.0 | 47.1% |
Other | |||||
Firms reporting | |||||
Higher sales Q/Q | 4.0 | 0.0 | -1.0 | -3.0 | 57.5% |
Credit harder to get | 5.0 | 7.0 | 5.0 | 5.0 | 46.2% |
Raising inventories | -2.0 | 2.0 | 5.0 | 1.0 | 40.9% |
*100% is high, 0% is low |