Thoughts on the US Economy

What do we think about the current state and trend of the United States economy?


Since 1997, our firm has been serving SME [small and medium sized entrepreneurs] with a professional menu of working capital and related services. As a result, we have witnessed many ups and down in the United States economy during this period. Given the fact that most of our clients’ entire lively hoods are invested in their businesses they need to be not only nimble but really smart to succeed in what has been a very challenging economic environment in the United States.

I have written consistently and extensively in the past about the overall trends we see in the United States economy and the impact upon our clients levels of growth, expansion and need for working capital to grow their business. I am going to spend this article examining the current small business sentiment in the United States and then also write additional articles on a “big picture” view of the United States economy. The correct place to start is to present data what small business owners are reporting to the NFIB [National Federation of Independent Business] Small Business Economic survey. The NFIB has collected data on Small Business Economic Trends quarterly since 1973 and monthly since 1986. Survey respondents are drawn for NFIB’s membership and the report [referred to below] is typically released on the second Tuesday of each month. The most recent survey used a sample of 3,938 small business owners and recorded a response rate of 17%.

As noted in the text that accompanied the most recent Survey results. “The latest Small Business Optimism Index rose 2 points to 93.4, mostly reversing the February decline but failing once again to breach the 95 ceiling that has capped the Index during the recovery. Six of the Index components improved, two were unchanged, and two were lower.”
As always the case, the Survey also includes a short recap/opinion sector written by the NFIB Chief Economist Bill Dunkelberg. I thought his comments this month were right on the money; “Overall, the March gain more or less reversed the February decline. While the Index still can’t seem to get above 95, we can be encouraged that the economy is at least crawling forward and not heading in reverse,” said NFIB chief economist Bill Dunkelberg. The outlook for real sales gains accounted for about half of the improvement with inventory satisfaction and inventory investment plans accounting for most of the rest. However, throughout this recovery we’ve seen these types of increases only to have them go nowhere. As long as Washington continues to ignore policies that could restore the middle class, job creation will continue to be sub-par.”

Let’s look at the actual data and draw our own conclusions about the current/near term prospects for the United States economy. All of the data/charts below are taken directly from the April 2014 NFIB Survey document.

small business optimism

The first chart I selected presents data on the Optimism Index of NFIB Small Business owners from the period 1986 to the current month, April 2014. This graph has nearly 30 years of data on the overall optimism expressed by business owners and as we can see, most remain pretty damn pessimistic about the state of the United States economy. This is perhaps even more starkly illustrated when you consider that Index results over the past 10+ years haven’t been anywhere even close to the Index value of 100 established in 1986! After peaking in 2005, the Index collapsed to a low of 81.0 in March 2009 and has never really ever recovered. The current reading of 93.4 [March 2014] is essentially no higher than results for the Index in 2011.

Here is that actual data, again using 1986 seasonally adjusted = 100 as the starting point.


So it is safe to say that the overall mood of the Small Business Owners surveyed is sour at best. But are these entrepreneurs surveyed really that down on the United States economy and our political leadership? Let’s dig deeper and look at some other interesting data to shed some other light on the attitudes of NFIB members and small business owners.
One of the interesting questions the Survey has asked consistently over the past nearly 20 years to small business owners is a simple but profound one: Is this a good time to expand, given the general economic conditions in the United States?

This question [and answer] is very important become the small businesses owners desire to expand is what in large measure really drives the United States economy. As I have documented in the past, the small business is the most important cog in the United States economy, after consumer spending. The facts, as documented by the Small Business Administration “SBA” are worth presented again to illustrate the magnitude of the small business sector in the overall United States economy. For additional information, go to, and search under the Heading entitled “Advocacy”.

According to the SBA, a small business is defined as an independent business having fewer than 500 employees. For most businesses, 500 employees is hardly a small business. In 2011 [the most current SBA data available,], there were 28.2 million small businesses, and 17,700 firms with 500 employees or more. Over three-quarters of small businesses were nonemployers; this number has trended up over the past decade, while employers have been relatively flat.

Most people simply don’t know or understand the magnitude of the small business sector in the United States. Utilizing the data and definitions from the SBA, small businesses make up the following; 99.7% of United States employer firms, 63% of net new private-sector jobs, 48.5% of private-sector employment, 42% of private-sector payroll, 46% of private-sector output, 37% of high-tech employment, 98% of firms exporting goods and 33 % of exporting value.

Source: U.S. Census Bureau, SUSB, CPS; International Trade Administration; Bureau Of Labor Statistics, BED; Advocacy-funded research, Small Business GDP: Update 2002-2010,

Most people that I talk to or meet also assume that the majority of the new jobs that have been created in the United States over the past 20 years or so are in large or multinationals businesses. In fact, the direct opposite has been the case, Small firms accounted for 63% of the net new jobs created between 1993 and mid-2013 (or 14.3 million of the 22.9 million net new jobs). Since the end of the recession (from mid-2009 to mid-2013), small firms accounted for 60% of the net new jobs.

This fact is very important to remember for one key reason; job creation only occurs when owners of the business [regardless of size] are optimistic about their future sales, revenue and growth prospects. Given the importance of the small business as the primary job creation role in the United States economy, the fact that owners remain very pessimistic as measured by the NFIB Optimism Index does not bode well for near term significant job growth in the United States.

This is precisely why the overall level of new job creation in the United States since the end of the recession in 2009 has been so pathetic. Small business owners simply will not and have not added payroll and employees due to what they perceive as really unfriendly conditions in political terms and for the economy as a whole. Only when this negative outlook changes will job creation become both a reality and sustainable in the United States.

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