The National Bureau of Economic Research, the group recognized as the official arbiter of recession dating, has officially declared an end to the longest U.S. economic expansion. February 2020 has been designated the peak month of the 128-month long expansion that began in June 2009, eclipsing the 120-month record from March 1991 through March 2001.
The small-business Optimism Index from the National Federation of Independent Business posted a gain in May, rising 3.5 points to 94.4 versus 90.9 in April (see top chart). Two consecutive sharp declines in March and April put the index at its lowest level since March 2013.
According to the report, “The economic landscape is in turmoil, rocked by government policies to fight Covid-19, dramatic changes in Federal Reserve policies, the behavior of financial markets, government policies to stimulate the economy, and widespread protests expressing overwhelming public concerns.” Despite the turmoil, the report indicates that “small businesses are eager to get back to work.”
A net -24 percent of respondents expect higher sales over the coming months, up from -42 in April, while a net -19 percent report higher sales for the most recent three months versus the prior three months. Not surprisingly, the net percentage reporting higher earnings over the prior three months dropped to -26 following a -20 reading in April.
The weakness in sales as a result of the collapse in economic activity kept sales to the top position on the list of most important issues for small businesses. Among the 10 issues listed in the survey, poor sales ranks first at 18 percent, quality of labor ranks second at 17 percent, taxes came in third at 15 percent while government regulation and red tape was fourth on the list at 14 percent.
Despite the deeply negative index result for expectation for sales over the next three months, the net percentage believing the economy will improve six months from now rose, posting a solid 34 percent reading, up from 29 percent in April.
That optimism, while a good sign, does not appear to be dramatically improving business decisions. The net percentage of respondents believing now is a good time to expand came in at 5 percent, up from 3 in April. The percentage of firms planning to increase employment did rise to 8 percent in May versus 1 percent in April while a net 23 percent of firms still report having openings they are not able to fill at the moment, down from 24 percent last month. A modest silver lining to the surge in unemployment, the percentage of firms reporting few or no qualified applicants for job openings fell to 37 percent, down from 41 percent in April and 47 percent in March; this measure is now 20 points below the record 57 percent from August 2019.
Twenty percent of firms have plans for capital expenditures over the next three to six months, up from 18 percent from the prior month. Fifty-two percent of small businesses have made capital expenditures during the past six months. That is somewhat below the typical percentage in the upper 60s during the late 1990s but still above the mid-40s percentages during the last recession. The most popular type of expenditure was equipment (35 percent) followed by vehicles (20 percent) and building/land improvement (15 percent). The most popular outlay range was $10,000 to $49,999.
Overall, the survey suggests the small-business sector of the economy has been deeply impacted by the outbreak of COVID-19 and government policies enacted to contain the spread of the virus. While the government support programs are helping, small businesses need consumers to start shopping again as quickly as possible.
Weekly retail same-store sales data from Johnson Redbook reflect the collapse in retail spending as a result of the COVID-19 outbreak. As of the week ending June 6, the Redbook same-store sales index estimates a 3.2 percent drop in June versus the previous month. From a year ago, same-store sales are off 9.7 (see second chart). Though weekly data tend to be volatile, the results suggest that some retail activity may be stabilizing.
The latest Job Openings and Labor Turnover Survey from the Bureau of Labor Statistics shows the number of open positions in the private sector fell to 4.401 million in April (see third chart). Total job openings dropped to 5.046 million. The industries with the largest number of openings were health care (972,000), professional and business services (883,000), retail (513,000), and leisure and hospitality (454,000).
The job-openings rate, openings divided by the sum of jobs and openings, was 3.9 percent for the private sector, unchanged from the prior month. The highest openings rates were in health care (5.0 percent), information industries (5.7 percent), leisure and hospitality (4.9 percent), and professional and business services (4.4 percent).
The layoffs rate eased back following a surge in March, falling to 5.9 percent versus 7.6 percent in March. In February, the layoff rate was just 1.2 percent. For the private sector, the layoff rate in May was 6.9 percent, down from 8.8 percent in March but still well above the 1.4 percent in February.