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The debate is on: Are we heading for recession?

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The president wants lower interest rates and a continuing strong stock market. His political foes blame tariffs and a trade war for failings in the economy.

The president cites record low unemployment. His critics point to plant closings in key states.

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The economy will not always be in expansion mode. Economic principles and history tell us that. Yet people as well as policy have a lot to do when expansion turns to recession. And the health of small businesses, the backbone of the economy, reveals a lot about where things are heading in both the long and short terms.

That said, the most recent small business Optimism Index maintained a historically solid reading, though it took a dip in September, falling 1.3 points to 101.8. September’s figure falls within the top 20% of all readings in the index’s 46-year history.

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The good thing: The survey showed no sign of a recession and indicated continued job creation, capital spending and inventory investment, all consistent with solid, but slower growth.

The worry: The Uncertainty Index rose 2 points, revisiting high levels of concern.

“As small business owners continue to invest, expand and try to hire, they’re doing so with less gusto than they did earlier in the year, thanks to the mixed signals they’re receiving from policymakers and politicians,” NFIB President and CEO Juanita D. Duggan said. “All indications are that owners are eager to do more, but they’re uncertain about what the future holds and can’t find workers to fill the jobs they have open.”

State-specific data is unavailable, but NFIB State Director Ben Homeyer said, “The uncertainty is troubling, but, overall, our members are upbeat.”

Key findings from September’s index:

• No component advanced, three were unchanged (at good levels), and six declined.

• Reports of rising labor compensation remained historically strong and fewer firms reported raising selling prices, so rising labor costs are still not pushing up inflation on Main Street.

• Twenty-five percent expected credit conditions to remain unchanged or to tighten in spite of two rate cuts by the Federal Reserve. Reported credit market conditions remain among the most supportive in the 46-year survey history.

• Twenty-two percent of owners said it was a good time to expand, down 4 points, while a net 9% expect better business conditions, down 3 points.

It is clear that perception is playing a role in the uncertainty being reported by small business. There are a lot of mixed signals, but thankfully they have not put the breaks on expansion.

As NFIB Chief Economist William Dunkelberg states: “Perhaps the country will indeed talk itself into a recession, but not anytime soon. The persistence of unfilled job openings and reports of a deficiency of job applicants indicate that there is still substantial economic optimism about the economy on Main Street.”

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