Evening Brief – 04.11.23

The National Federation of Independent Business (NFIB) small business optimism index dipped to a three-month low of 90.1 in March, down from 90.9 in February. This is the 15th straight month the index has come in below its 49-year average of 98, as business sentiment continued to drag through the first quarter of the year.

The index showed 24% of owners reporting inflation as their single most important business problem, and a net -47% of owners expecting better business conditions over the next six months, which in turn puts a dent on hiring plans.

“Small business owners are cynical about future economic conditions,” said NFIB Chief Economist Bill Dunkelberg. “Hiring plans fell to their lowest level since May 2020, but strong consumer spending has kept Main Street alive and supported strong labor demand.”

But what was perhaps most remarkable in the context of the credit crunch is how difficult it was for small US businesses to obtain a loan in March after bank failures led to a further tightening of credit conditions.

A net 9% of owners said financing was harder to get compared with three months earlier, the most since December 2012. Also, the four-point monthly drop in the series was the biggest collapse in credit availability in more than 20 years.

The same share expects tougher credit conditions in the next three months, matching the highest level in a decade and providing further evidence that a more severe credit crunch is in the works, at least when small businesses are asked how they perceive coming supply or the lack thereof.

Surprisingly, although credit is getting a bit more difficult, it ranks well below inflation as the single biggest problem. It seems the Fed is doomed if it keeps fighting inflation, as the likelihood of worsening credit conditions means a slowdown in growth, and equally doomed if it focuses on spurring credit growth, which in turn could lead to a renewed uptick in inflation.