We have been watching the growing pessimism of small business owners over the past few months as seen through the NFIB’s monthly survey. It now looks like the Federal Reserve is the Grinch that has stolen entrepreneurs’ Christmas.
Reaction by small-business owners to Federal Reserve rate cuts in September and October sent the National Federation of Independent Business Small-Business Optimism Index down 1.8 points to 94.4 in November — the lowest reading since 1993. Seventy percent of the index decline came from two index components, the outlook for real sales and the outlook for business conditions in six months.
“Things were looking good on Main Street until the Fed warned that the economy was at risk of sinking,” said NFIB Chief Economist William Dunkelberg. “That warning had credibility, and the logical response was to cut hiring, capital spending and other growth-related activities. And indeed that occurred in the last 12 days of September and continued into October and November. In general, small-business owner expectations that were on the rise before the Fed announcement fell after the announcement, and have drifted to lower levels since.”
One bit of good news is that the credit debacle that is behind much our current economic woes is not effecting credit conditions for small businesses. In fact, credit conditions continue to look normal. Regular borrowing activity was reported by 32 percent of the owners, four points below October but typical of readings since inflation ceased being the number one business problem 15 years ago. The net percent of owners reporting loans harder to get in recent months rose one point to a net 7 percent, typical of readings for the past several years.
Once again we are letting politicians and lobbyists set policy for the economy. The business missteps and outright greed from the mortgage and real estate industry is what created this mess. But, rather than let the market work this out, we are going for another bail-out.
Worst of all, these policy decisions coming out of Washington (including the President’s misguided consumer mortgage bail-out) are clearly hurting the one true and sustainable strength in our economy — the small business sector. If left to the market to sort out, we would have had a fairly short, albeit painful correction. However, the unintended consequences of the Fed’s actions and possible bail-outs from Washington will be the probability of a long-term hit on small business growth that could actually create the economic downturn these folks claim they are trying to prevent.
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