Based on a long overdo turn in trend in an important small business sentiment metric, we believe the American dream is still alive. The little engine that could can make it back up and over that mountain, because he is fueled by the determination and unstoppable will of a nation full of little men with big dreams.
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We have enjoyed a light economic data week thus far, but Tuesday offered an important measure of our economic well-being. The National Federation of Independent Business (NFIB) produces its Small Business Optimism Index monthly, and my old Dean at Temple University, William Dunkelberg, finds his way over to Bloomberg Radio to talk it up every month. Go Owls!
While the ECB's fix to euro uncertainty has been the main factor in market restoration this week, this somewhat obscure, lightly followed SBO Index characterizes the little engine that could take us back over the mountain top. This is because of the great importance of the small business sector within the framework of the American economy. Still, there's an underlying reason to be hopeful; small business sits at the literal heart of America, and the sentiment of its entrepreneurs accurately reflects the mental state of the nation.
In America, the land of opportunity, there is no shortage of entrepreneurs. Little men with big dreams drive this economy, and sometimes they game it as well. Everyone knows the Warren Buffet story, but there are millions more smaller scale versions. There are also less known amazing American stories like Warren's all around us. I recently heard about a Georgian immigrant Warren should know. The guy is my neighbor up here on the Upper East, though there is a world of difference between my side of the hood and his, which is across the street from the Metropolitan Museum of Art. Anyway, the story goes, the hard working immigrant started driving a taxi, then bought a taxi, then bought a taxi company, and so on and so on. Before long, he was investing in real estate and other business endeavors, and thus built a vast store of wealth. That is the American dream, to make a success out of a life otherwise full of hard knocks.
The dream is still alive in the hearts and minds of men and women across the country. Whether you are trapped in a cubicle answering to an unreasonable boss who may be a sociopath (that didn't take much creative thought), or working crazy hours waiting tables just to pay the bills and kill time until the economy recovers, at the same time you are dreaming. The guy next to you is dreaming too, because it's real hard to suck it up over a long period. If the plan does not come together naturally, all properly prepped and such, then at some point, disgust brings the dream to the fore.
I guess some of us are okay with collecting a regular check, having health insurance, and owning a sense of certainty about the direction of our lives; or we are just not willing to put that at risk. Many of us have families to consider as well, and that important responsibility allows us to accept the status quo. Some of us may have other types of dreams, perhaps to rise within a firm or leverage a position to rise into another firm. This is certainly a similar route to the entrepreneur's, but vastly different as well. On one road, we accept our role in the system, and justify it by seeking to rise within it. In the other, we reject the system completely, work outside of the box, and make our own way. Both routes seem to offer their ample rewards.
There is a very special satisfaction though that is awarded to the entrepreneur, because he reaps his reward ever step of the way, ever day of his life. His reward comes in every inch gained and with every penny increase in equity value. And we are confident that as long as he is steadfast, his hard work ethic will overcome the many mistakes he may make in finding the way. Finally, in the end he will sit atop the castle that he created and pass it on to his children. That is the American dream is it not? I believe it is the purest form of it anyway.
Small Business Optimism
The NFIB's measure took back 3.8 points in April, rising to 90.6. The report's producers were overjoyed as the measure lifted its head above the 90 watermark for the first time in seven quarters! President Obama's advisers had naively held that tax incentive might spur employment in the small sector base. But Bill Dunkelberg has harped each month about the feeling on the front lines of the field of battle, where no hiring will occur without business activity. So I say, you can keep your tax break Mr. President, because I only pay taxes on income, and when I bring on an employee, my income decreases without an increase in sales.
So, guess what. We are finally seeing improvement in the sales atmosphere. Nine out of ten index components rose in April, including sales and business conditions. Dunkelberg said the move was not enough reason to bet on economic recovery, but it was "a move in the right direction." Well it is about time we got that move, because you do not have to give a dreamer much to get his wheels spinning. For now, employment and capital investment are not occurring in the small business sector, but the entrepreneur just started making pennies again; so give him a minute.
Over the next three months, 14% of survey respondents said they would bring on new hires, while 7% said they would be laying people off. The employment reading was a notch better than March, though still very weak, according to the NFIB. Capital spending too still ranked far to close to its record low level reached in December 2009.
Now, sales actually continued to fall in April, generally speaking. The net percentage of business owners reporting higher nominal sales in April improved by 10 points to a net negative 15%. While negative still signifies more owners seeing sales decline than seeing increase, the NFIB defined the change as "huge." In fact, it was the best reading since September of 2008. Finally, a small number of business owners are projecting a sales increase (6% of surveyed) for the next three month period. In other words, they can see the light at the end of the tunnel.
Where the Administration might better aid small businesses is in making credit available to them. 31% of business owners going to capital markets for funds continued to report difficulties in arranging credit. Where businesses are viable, these guys need funds to keep operations going through these hard times and to prevent the consolidation of operations, something the Administration does not want to see happen.
The NFIB data seems to say the little engine is running on fumes and self-reassurance (I think I can...), but entrepreneurs are bred that way anyhow. As long as they think they can, they might very well make it up over the mountain top.
I conclude with a relevant quote by Alexander The Great, "There is nothing impossible to him who will try."
An aside on Dunk...
It's kind of funny to hear Mr. Dunkelberg trading smart word play with Bloomberg's legendary Tom Keene, who cracked me up a couple weeks ago when he called Bill "Dunk" on the fly. Yeah, we all heard it Tom - thanks for the laugh. My impression of Bill was that while he is a big guy (probably fits as a small forward - or a center in a white playground), I doubt he can dunk a basketball. HOWEVER, being a Temple Owl, he probably plays tenacious defense, limits turnovers and wins ugly. I know for sure that he is a genuine nice guy, and he gave a considerate, tearjerker of a speech at my graduation that enhanced that amazing day. Thanks for the memories Dunk and Temple U.
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