January Small Business Confidence and December Job Openings

KEY DATA: NFIB: -0.9 point; Expectations: -7 points; Hiring: +5 points/ Openings: +74,000; Hiring: -396,000; Layoffs; -243,000

IN A NUTSHELL: “The small business sector has a bit of a frown on its face as conditions seem to be deteriorating.”

WHAT IT MEANS: If the small business component of the economy is the foundation upon which growth is built, then we need to be a little worried.  The National Federation of Independent Business’s January survey of small business owners was an eye-opener.  The decline in the overall index of business activity was modest, so what’s the concern?  Well, the details don’t point to a bunch of happy businesspeople.  Expectations fell like a rock and hit its lowest point since November 2013.  Sales and earnings softened.  Hiring continues, but firms still are having trouble attracting qualified workers.  But businesses are still investing, and they do have plans to hire more people in the future, if they can find them.  That said, future spending plans are limited.  Basically, this sector could use a shot in the arm (as could we all!).

The last two employment reports were not very pleasant, but that doesn’t mean the labor market is falling apart.  It has paused, however.  The Job Openings and Labor Turnover Survey, better known as the JOLTS report, was mixed in December.  Openings rose modestly, but the details were not quite as positive as the headline.  A variety of sectors posted declines, but a nearly 300,000 jump in openings in the professional and business services pushed the number into the positive zone.  While layoffs slowed, hiring plummeted, which we saw in the monthly employment survey.  Interestingly, the number of workers quitting their jobs rose solidly.  The level is climbing back closer to where it was before the pandemic hit. 

IMPLICATIONS:  The best was to summarize the situation facing the small business community is to quote the authors of the NFIB report: “January came in with a whimper”.  The softening economic situation has raised concern among business owners and will likely make them quite cautious about hiring and expansion in the near future.  Economists forecast this slowdown and amazingly, it actually happened.  No, seriously, with all the government money sloshing around, it is hard to really get a handle on what the economy will look like since spending patterns are being altered.  What is clear is the need for more stimulus.  What isn’t clear is how much.  Splitting the difference between the president’s and the Republican’s proposals would get us to about $1.25 trillion.  That should be more than enough, as long as the money is distributed to those who are actually in need.  Showering parents of children with tons of money without means testing or adjusting for family size makes little sense, but it is a politically popular approach.  Rescuing zombie businesses or supporting workers in profit-making businesses is also inefficient, but don’t tell that to the business lobby.  As for the deficit, the attitude is either it doesn’t matter or if it does and you are giving out money anyway, then just send it my way.  So, look for a bill that is large enough to keep most households and businesses afloat until the end of the year.