The latest issue of the NFIB Small Business Economic Trends is out today (see report). The August update for July came in at 91.2, which is the lowest reading since October of 2011. The indicator remains in a range first seen during the early months of the last recession.

Here is the opening summary of the report:

The Optimism Index gave up 0.2 points, falling to 91.2. Owner optimism remains at recession levels and has stayed in a recession zone for years, oscillating between 86.5 (in July 2009) and 94.5 (February 2012) since the recession officially ended in June 2009. Prior to 2008, the Index averaged 100, significantly above the current reading. The Index has averaged 90 in this recovery, now three years old and is the worst recovery period from a recession in the NFIB survey history which began in 1973. Nothing happened in July that would make owners more optimistic about the near-term future.

The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings of the past three years. The NBER declared June 2009 as the official end of the last recession.

Inventories and Sales

Particularly striking are the grim findings on small business sales and sales expectations.

The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months lost 4 points, falling to negative 9 percent, this after a 7 point decline in June. Twenty (20) percent still cite weak sales as their top business problem, historically high, but down from the record 33 percent reading in December 2010. The net percent of owners expecting higher real sales lost 1 point, falling to a net negative 4 percent of all owners (seasonally adjusted), producing a four month decline of 16 percentage points.

NFIB Commentary

The opening to this month’s “Commentary” section helps us put today’s number in the larger economic and political context:

If it weren’t for population growth, Gross Domestic Product growth would be about zero. More people eat burgers, get haircuts, drive a vehicle, etc. So, 1 percent population growth will support something like a 1 percent growth in spending. And that’s our basic support level. Absent that (as in Japan and Eastern Europe where it’s near zero), growth would be under 1 percent. And the NFIB indicators point to a continuation of just that kind of growth.

Business Optimism and Consumer Confidence

The next chart is an overlay of the Business Optimism Index and the Conference Board Consumer Confidence Index. The consumer measure is the more volatile of the two, so I’ve plotted it on a separate axis to give a better comparison of the volatility from the common baseline of 100.

With the latest NFIB data, we see that the mood of small businesses continues its down trend against the one-month bounce in the most recent consumer confidence reading.

Images: via Flickr (licence attribution)

About The Author

My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.

My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.

Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.

Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.