April 10, 2024
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Small business optimism fell 0.9 point in March to 88.5 after declining 1.1 points in February. That is the lowest level for this series since December 2012 which makes the current level even lower than the low point in the March/April 2020 recession which seems excessively low to us. They are well below the 40-year average so-called breakeven point for this series which is 98.0.
NFIB Chief Economist William Dunkelberg said, “Small business optimism has reached the lowest level since 2012 as owners continue to manage numerous economic headwinds. Inflation has once again been reported as the top business problem on Main Street and the labor market has only eased slightly.”
Certainly the demand side of the economy continues to expand at a moderate rate. But the combination of higher interest rates and the resumption of payments on student debt should moderate slower growth in the first half of 2024.
We expect to see 2.5% GDP growth in both the first and second quarters of this year. Estimates of potential GDP growth today are about 2.0%. Thus, the economy seems to be growing at respectable pace with no hint of a recession in sight.
The core CPI is expected to slow to 3.5% by yearend which is a bit slower than expected and still well above the Fed’s 2.0% target pace. It should continue to moderate to 2,9% by the end of 2024. The Fed does not expect the core rate of inflation to return to 2.0% until 2025. The Fed should begin a slow but steady easing pace by mid-summer.
With GDP growth continuing at a respectable pacem inflation very gradually slowing, and the Fed soon beginning to reduce interest rates (even at a slower pace than the markets expected), it is surprising that small business owners are as pessimistic as they are. Our sense is that they are overly worried.
Stephen Slifer
NumberNomics
Charleston, SC
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