Economic & Housing Weekly Note

Small Businesses’ Optimism Rises, Though Outlook and Sales Expectations Decline

September 11, 2020

Key Takeaways:

  • The National Federation of Independent Business (NFIB) Small Business Optimism Index rose 1.4 points in August to 100.2. The net share of firms planning on increasing employment rose 3 percentage points to 21 percent, tying the level seen in February. However, the net share of firms expecting the economy to improve dipped to 24 percent, the lowest level since March. The net share of firms expecting real sales to increase over the next six months also fell slightly to just 3.0 percent.
  • Consumer (non-mortgage) credit outstanding rose $12.2 billion in July, according to the Federal Reserve Board. The increase was driven entirely by nonrevolving credit (largely student and auto loans), which rose by $12.5 billion, while revolving credit (largely credit cards) fell by around $300 million. Revolving credit has fallen for five straight months and remained 9.5 percent below the expansion peak seen in February.
  • The Job Openings and Labor Turnover Survey (JOLTS) showed that job openings rose by 617,000 in July, according to the Bureau of Labor Statistics, though they remained 5.5 percent lower than they were in February. The increase in job openings was partially driven by retail trade and education/health services. Total hires fell by 1.2 million, the largest single-month decline on record, giving back some of May’s 3.2 million gains. The quits rate edged higher to 2.1 percent, the third straight month of recovery after the recent trough of 1.4 percent in April.
  • The headline Consumer Price Index (CPI) and core CPI (excluding energy and food prices) both rose 0.4 percent in August. From a year ago, headline CPI increased 1.3 percent, an acceleration of three-tenths from last month, though still dragged down by a 9.0 percent decline in annual oil prices. Core CPI rose 1.7 percent, an acceleration of one-tenth from last month.
  • Mortgage applications rose 2.9 percent for the week ending September 4, according to the Mortgage Bankers Association. Purchase applications rose by 2.6 percent and refinance applications posted its first increase in four weeks, rising 3.0 percent.
Forecast Impact:

While the increase in small business confidence in August was a welcome sign, the underlying details of the survey highlight that risks remain to the recovery, with small businesses’ expectations for the economic outlook and real sales continuing to fall. The continued decline in revolving credit in July was expected, but we expect this will begin to increase this quarter along with consumer confidence, providing support for consumer spending. Job openings rose in July, though hires fell sharply, underscoring the slowing recovery in the labor market. Inflation continues to creep upward from a year ago, though low energy prices continue to drag on headline inflation. In housing, the increase in purchase mortgage applications for the fourth time in the past five weeks continues to suggest strength in home sales over the next couple of months, continuing the impressive growth in home sales seen despite the pandemic.

Small Business Optimism Rises Slightly Though Outlook for Economy Falls in August

Inflation Accelerates Though Energy Prices Continue to Drag on Headline Inflation


Economic and Strategic Research Group

September 11, 2020

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