MACRO MONDAY 33 ~ U.S. NFIB Business Optimism Index
MACRO MONDAY 33 ~ NFIB
National Federation of Independent Business Index (NFIB)
Released Tuesday 13th Feb 2024
Think of the NFIB small business index as a sentiment index, a sort of mood meter for small businesses. The higher the index, the more optimistic small businesses will be about spending more, expanding and increasing or maintaining employees.
The NFIB is the nation’s largest small business advocacy group, with more than 600,000 members from all 50 states. Members are typically small to medium-sized enterprises (SMEs). These small businesses account for roughly 50% of the nation's private workforce and contribute to 44% of all U.S. economic activity making them an extremely important cohort to monitor and survey for economic purposes.
The NFIB Index data
The NFIB Small Business Optimism Index (chart data) is a composite of ten seasonally adjusted components calculated based on the answers of around 620 of the NFIB members. The survey questions cover various aspects of business sentiment, such as hiring plans, sales expectations, capital expenditure plans, and overall economic outlook. The Index figure is derived from all the survey responses, weighted and aggregated to produce a composite score that reflects the sentiment and economic outlook of small business owners.
Baseline Level (100): The baseline level of 100 is often considered the neutral point on the NFIB Index. An index value of 100 indicates that small business owners are neither optimistic nor pessimistic about economic conditions. Values above 100 indicate optimism, while values below 100 indicate pessimism.
On the chart below I note the relevance of the sub 91.5 level as a breach of this level has historically preceded or coincided with recessions (grey areas).
The Chart
The chart is fairly straightforward in that the green zone illustrates the optimistic zone (>100), the pessimistic zone is orange (<100) and the recession zone is red (<91.5).
At present we are moving out of recessionary territory into the pessimism zone which is an improvement but we are a long way from the neutral level of 100. Expectations for Tuesdays release is a slight move higher towards 92.4. If we do move to 92.4 it will be the highest level recorded since June 2022.
NFIB Negative Divergences
Here is a supplemental chart that illustrates how the NFIB small business sentiment index has presented clear negative divergences against the S&P 500 during the last three recessions.
In addition to the negative divergences, thereafter the following trigger events marked the beginning of thee significant drawdown events of each recession;
1⃣The NFIB index breached below the 100 level in Oct 2000 prior to the Dot. Com Crash
2⃣ The NFIB index breached below the 91.5 index level in April 2008 prior to the GFC capitulation event
3⃣ The NFIB index breached both the 100 (Mar 2020) and 91.5 (Apr 2020) index level during the COVID Crash.
In summary the negative divergences signaled the initial warning signs of recessions, thereafter losing key levels such as the 100 level and 91.5 level signaled the main draw down event initiation.
Not all negative divergences resulted in a recession or poor price action and not all recessions came about after a breach of the 100 level however, both in combination add weight to the probability (but no guarantee's). This chart should not be viewed in isolation but should be added to our other charts to help gauge the likelihood of negative and positive outcomes.
At present the small cap 2000 index is significantly under performing other stock indices which are breaking past all time highs. The small cap 2000
RUT
adds weight to the struggling smaller businesses in the U.S. when combined with the under performing pessimistic reading of the NFIB small business index. A significantly positive reading on the NFIB could be a leading signal that small caps could start to perform again, catching up with the other indices. A negative reading might suggest the small caps 2000 will continue to lag and struggle.
Lets see how we fair on Tuesday for the release of January 2024's survey results
PUKA
Lets see how we fair on Tuesday for the release of January 2024's survey results
PUKA
National Federation of Independent Business Index (NFIB)
Released Tuesday 13th Feb 2024
Think of the NFIB small business index as a sentiment index, a sort of mood meter for small businesses. The higher the index, the more optimistic small businesses will be about spending more, expanding and increasing or maintaining employees.
The NFIB is the nation’s largest small business advocacy group, with more than 600,000 members from all 50 states. Members are typically small to medium-sized enterprises (SMEs). These small businesses account for roughly 50% of the nation's private workforce and contribute to 44% of all U.S. economic activity making them an extremely important cohort to monitor and survey for economic purposes.
The NFIB Index data
The NFIB Small Business Optimism Index (chart data) is a composite of ten seasonally adjusted components calculated based on the answers of around 620 of the NFIB members. The survey questions cover various aspects of business sentiment, such as hiring plans, sales expectations, capital expenditure plans, and overall economic outlook. The Index figure is derived from all the survey responses, weighted and aggregated to produce a composite score that reflects the sentiment and economic outlook of small business owners.
Baseline Level (100): The baseline level of 100 is often considered the neutral point on the NFIB Index. An index value of 100 indicates that small business owners are neither optimistic nor pessimistic about economic conditions. Values above 100 indicate optimism, while values below 100 indicate pessimism.
On the chart below I note the relevance of the sub 91.5 level as a breach of this level has historically preceded or coincided with recessions (grey areas).
The Chart
The chart is fairly straightforward in that the green zone illustrates the optimistic zone (>100), the pessimistic zone is orange (<100) and the recession zone is red (<91.5).
At present we are moving out of recessionary territory into the pessimism zone which is an improvement but we are a long way from the neutral level of 100. Expectations for Tuesdays release is a slight move higher towards 92.4. If we do move to 92.4 it will be the highest level recorded since June 2022.
NFIB Negative Divergences
Here is a supplemental chart that illustrates how the NFIB small business sentiment index has presented clear negative divergences against the S&P 500 during the last three recessions.
In addition to the negative divergences, thereafter the following trigger events marked the beginning of thee significant drawdown events of each recession;
1⃣The NFIB index breached below the 100 level in Oct 2000 prior to the Dot. Com Crash
2⃣ The NFIB index breached below the 91.5 index level in April 2008 prior to the GFC capitulation event
3⃣ The NFIB index breached both the 100 (Mar 2020) and 91.5 (Apr 2020) index level during the COVID Crash.
In summary the negative divergences signaled the initial warning signs of recessions, thereafter losing key levels such as the 100 level and 91.5 level signaled the main draw down event initiation.
Not all negative divergences resulted in a recession or poor price action and not all recessions came about after a breach of the 100 level however, both in combination add weight to the probability (but no guarantee's). This chart should not be viewed in isolation but should be added to our other charts to help gauge the likelihood of negative and positive outcomes.
At present the small cap 2000 index is significantly under performing other stock indices which are breaking past all time highs. The small cap 2000
RUT
adds weight to the struggling smaller businesses in the U.S. when combined with the under performing pessimistic reading of the NFIB small business index. A significantly positive reading on the NFIB could be a leading signal that small caps could start to perform again, catching up with the other indices. A negative reading might suggest the small caps 2000 will continue to lag and struggle. Lets see how we fair on Tuesday for the release of January 2024's survey results
PUKA
Lets see how we fair on Tuesday for the release of January 2024's survey results
PUKA
Comment:
U.S NFIB Business Optimism Index
Rep: 88.5 🚨 Lower than expected & prior month🚨
Exp: 90.2
Prev: 89.4 (no revision)
The NFIB US Small Business Sentiment Index is deep in pessimistic/recessionary territory. The release today shows a move from 89.4 to 88.5 from Feb to Mar 2024.
92 Level - A key level to watch
The NFIB Index has been rejected four times from the c.92.0 level; Sept 2022, Nov 2022, Jul 2023 and Dec 2023.
A definitive positive first step towards less pessimistic sentiment would be a move above the 92 level which at present is not materializing. You can see how the red line at c.91.5 has been an important area of resistance and support historically. At present we are currently under water in deep pessimistic territory. A move above 92.4 would be the highest level recorded since June 2022 (a significant move to watch for in the future).
So at present we are firmly in recessionary territory and we are a long way from the neutral level of 100.
Rep: 88.5 🚨 Lower than expected & prior month🚨
Exp: 90.2
Prev: 89.4 (no revision)
The NFIB US Small Business Sentiment Index is deep in pessimistic/recessionary territory. The release today shows a move from 89.4 to 88.5 from Feb to Mar 2024.
92 Level - A key level to watch
The NFIB Index has been rejected four times from the c.92.0 level; Sept 2022, Nov 2022, Jul 2023 and Dec 2023.
A definitive positive first step towards less pessimistic sentiment would be a move above the 92 level which at present is not materializing. You can see how the red line at c.91.5 has been an important area of resistance and support historically. At present we are currently under water in deep pessimistic territory. A move above 92.4 would be the highest level recorded since June 2022 (a significant move to watch for in the future).
So at present we are firmly in recessionary territory and we are a long way from the neutral level of 100.
Rep: 89.4% 🚨LOWER THAN EXPECTED🚨
Exp: 90.7%
Prev: 89.9%
The NFIB Index came in lower than expected at 89.4% (vs exp. 90.7%). The index is now very close to the lows of April 2023 which were at 89%.
As you can see from the chart below, we are firmly in the red zone which historically has coincided with the last four recessions.