The Election, Small Business, and the Economy

THE ELECTION, SMALL BUSINESS, AND THE ECONOMY WILLIAM DUNKELBERG CHIEF ECONOMIST, NFIB

TWO WAYS OUT, NEITHER DESIRABLE

JOB GROWTH IN TWO NBER RECOVERY PERIODS, 1983 AND 2009 2009

1983-90

2000

AVERAGE 689,000

1500

AVERAGE 438,000 (535,000)

1000 500 0 -500

1

4

7

13

16

19

22

25

28

QUARTERS OF RECOVERY

-1000

HAVER ANALYTICS -1500

10

GDP GROWTH: “83” 4.5% “09” 2.1%

REAL GDP GROWTH IN NBER EXPANSION PERIODS PERCENT 6

THE WEIGHT OF GOVERNMENT

5 4 3 2 1

20 09

20 02

19 91

19 83

19 80

19 75

19 71

19 61

19 58

0

EXPECTING BETTER ECONOMY UNIVERSITY OF MICHIGAN, 2/17 REPUBLICANS 120 100 I N D E X

V A L U E

80 60 40 20 0

INDEPENDENTS

DEMOCRATS

MOST IMPORTANT PROBLEMS 2016 1. RISING HEALTH CARE COST 2. COST OF REGULATIONS AND RED TAPE 3. FEDERAL TAXES ON BUSINESS INCOME 4. UNCERTAINTY ABOUT THE ECONOMY 5. TAX COMPLEXITY 6. UNCERTAINTY ABOUT GOVT POLICY 7. FREQUENT CHANGES IN THE TAX CODE 8. PROPERTY TAXES 9. STATE TAXES ON BUSINESS INCOME 10. FINDING QUALIFIED LABOR

SMALL BUSINESS FACTS • 90% OF ALL EMPLOYERS HAVE FEWER THAN 20 EMPLOYEES • 99% HAVE FEWER THAN 500 • PRODUCE HALF OF THE PRIVATE GROSS DOMESTIC PRODUCT • EMPLOY 50%+ OF PRIVATE SECTOR EMPLOYEES • PRODUCE 2/3RDS OF NEW JOBS

SMALL BUSINESS OPTIMISM INDEX (QUARTERLY, 1986 = 100) FIRST MONTH IN QUARTER

110

MAY JUNE

105 100 95 90 85 80 76

79

82

85

88

91

94

97

'00 '03 '06 '09 12

15

SEASONALLY ADJUSTED INDEX COMPONENTS ANSWERED OCT BEFORE AFTER NOV DEC JAN FEB MAR APR MAY JUN JOB CREATION 10 9 23 15 16 18 15 16 16 18 15 JOB OPENINGS 28 31 30 31 29 31 32 30 33 34 30 EXPECT EASIER CREDIT -6 -4 -5 -5 -6 -6 -3 -3 -4 -4 -3 EXPECT BUS COND BETTER -7 -6 38 12 50 50 48 46 38 39 33 EXPECT HIGHER REAL SALES 1 4 20 11 31 29 26 18 20 22 17 EARNINGS TREND HIGHER -21 -25 -16 -20 -14 -12 -13 -9 -9 -9.9 -10 INVENTORY TOO LOW (NET) -4 -3 -6 -4 -3 -5 -2 -5 -3 -5.5 -3 PLAN TO INCREASE INVENTORY 2 4 4 4 4 2 3 2 3 0.7 3.5 GOOD TIME TO EXPAND 9 11 11 11 23 25 22 22 24 23 21 PLAN CAPITAL SPENDING 27 25 23 24 29 27 26 29 27 28 30 OPTIMISM INDEX

95

95.4 102.4 98 106 106 105 105 105 105 104

EXPECTATIONS FOR BUSINESS CONDITIONS IN 6 MONTHS (PCT “BETTER” - PCT “WORSE”) FIRST MONTH EACH QUARTER

+ MAY JUNE

40 20 0 -20

'1 2 15

'0 6 '0 9

'0 0 '0 3

97

94

91

85

82

79

-40

88

SEASONALLY ADJUSTED

76

Percent of Firms

60

OUTLOOK FOR BUSINESS EXPANSION (PCT “NOW IS A GOOD TIME”)

FIRST MONTH EACH QUARTER

+ MAY JUNE

“NO” for 30 QUARTERS

25 20 15 10 5

(SEASONALLY ADJUSTED)

15

'1 2

'0 9

'0 6

'0 3

'0 0

97

94

91

88

85

82

79

0

76

Percent of Firms

30

BAD TIME TO EXPAND DUE TO THE POLITICAL CLIMATE

45 40 35 30 25 20 15 10 5 0

+ MAY JUNE

(SEASONALLY ADJUSTED)

16

'1 3

'1 0

'0 7

% OF THOSE SAYING “BAD TIME” '0 4

'0 1

Percent of Firms

QUARTERLY

REPORTED CHANGE IN PAST SALES (last 3 months vs prior 3) FIRST MONTH EACH QUARTER

MAY JUNE

30

RECESSION ENDS

10 0 -10 -20 -30

15

'0 0 '0 3 '0 6 '0 9 '1 2

97

94

91

88

82

79

85

[% "HIGHER" - % "LOWER", SEAS. ADJ.]

-40

76

Percent of Firms

20

EARNINGS TRENDS: %”HIGHER” - %”LOWER” PAST QUARTER VS PRIOR QUARTER FIRST MONTH EACH QUARTER

+ MAY JUNE

-10 -20 -30 -40

15

'1 2

'0 9

'0 6

'0 3

'0 0

97

94

91

88

85

82

79

-50

76

Percent of Firms

0

CREDIT MARKETS AND INFLATION

17

16

15

14

13

12

11

10

RECEIVABLES BILL PAYMENT TRADE CREDIT 0 -5 -10 -15 -20 -25 -30 -35 -40 -45 FIRST MONTH IN EACH QUARTER+MAY+JUNE -50 -55 -60 NET % WITH A FAVORABLE RESPONSE

'0 9

Percent of Firms

BILL PAYMENT, RECEIVABLES COLLECTION AND TRADE CREDIT

SMALL BUSINESS CREDIT PROBLEMS (% HARDER TO GET - % EASIER)

+ MAY JUNE

30 25 20 15

97 '0 0 '0 3 '0 6 '0 9 '1 2 15

94

91

88

85

82

79

10 5 0 -5

76

Percent of Firms

FIRST MONTH EACH QUARTER

REGULAR BORROWING ACTIVITY (AT LEAST ONCE A QUARTER)

% OF OWNERS

+ MAY JUNE

50 45 40 35 30 25

76 79 82 85 88 91 94 97 '0 0 '0 3 '0 6 '0 9 '1 2 15

Percent of Firms

55

ALL CREDIT NEEDS NOT SATISFIED + MAY JUNE

15 10 5

17

14

'11

'08

'05

'02

99

96

0

93

Percent of Firms

NEEDS NOT MET

LOAN DEMAND: PERCENT NOT WANTING A LOAN PERCENT OF ALL FIRMS NOT WANTING A LOAN

+ MAY JUNE

55

50

45

40

17

14

11

'0 8

'0 5

'0 2

99

96

35

93

Percent of Firms

RECESSION STARTS

SINGLE MOST IMPORTANT PROBLEM FACING OWNERS INFLATION

CREDIT

45 35 30

FIRST MONTH IN EACH QUARTER+MAY JUNE

25 20 15

CREDIT: NO PROBLEM

10 5

15

12

'0 6 '0 9

'0 0 '0 3

97

94

91

88

85

82

79

0

76

Percent of Firms

40

AVERAGE RATE PAID ON SHORT TERM LOANS RATE PAID

+ MAY JUNE

25

Percent

20

QUARTERLY

15 10 5 0

81

84

87

90

93

96

99 '02 '05 '08 '11

14

17

NET PERCENT REPORTING HIGHER INTEREST RATES [ ON THE LAST LOAN]

60 40 30 20 10 0 -10 -20 '1 2

'0 9

'0 6

'0 3

'0 0

97

94

91

88

85

82

79

-30 76

Percent of Firms

50

ACTUAL PRICE INCREASES SEASONALLY ADJUSTED 80

FIRST MONTH EACH QUARTER

FIRST MONTH IN EACH QUARTER

40 20

-40

'0 0 '0 3 '0 6 '0 9 '1 2 15

94 97

88 91

-20

82 85

0

76 79

Percent of Firms

60

+ MAY JUNE

CHANGES IN PRICES AND LABOR COMPENSATION COMPENSATION 40

PRICES

SEASONALLY ADJUSTED NET %

20 10

-20 -30

FIRST MONTH IN EACH QUARTER+MAY JUNE

17

14

'1 1

'0 8

'0 5

'0 2

99

96

93

90

-10

87

0 84

Percent of Firms

30

EMPLOYMENT AND JOB CREATION

UNFILLED JOB OPENINGS % WITH AT LEAST ONE UNFILLED OPENING FIRST MONTH EACH QUARTER

MAY JUNE

40

Percent of Firms

35 30 25 20 15 10

15 17

12

'0 6 '0 9

'0 0 '0 3

97

94

91

88

85

82

79

76

5

C IF IC W O R SK K IL H SO LS I S C IA TO R L SK Y IL L W LE S A G GA E EX L EN PE A G/M C PP EA AT R H A N A TT C E IT U D D E R U G S

SP E

TYPICAL REASONS APPLICANT “NOT QUALIFIED” 2007 2017

30

25

20

15

10

5

0

JOB CREATION PLANS % PLAN INCREASE - % PLAN DECREASE FIRST MONTH EACH QUARTER

MAY JUNE

25

15 10 5 0 -5

15 17

'1 2

'0 9

'0 6

'0 3

'0 0

97

94

91

88

85

82

79

-10 76

Percent of Firms

20

MOST IMPORTANT PROBLEMS LABOR COST LABOR QUALITY FIRST MONTH IN EACH QUARTER + MAY JUNE

20 15 10 5

15

'1 2

'0 9

'0 6

'0 3

'0 0

97

94

91

88

85

82

79

0 76

Percent of Firms

25

AVERAGE CHANGE IN EMPLOYMENT PER FIRM FIRST MONTH EACH QUARTER

MAY JUNE

0

-0.4

-0.8

14 17

'0 8 11

'0 2 '0 5

96 99

90 93

84 87

-1.2

78 81

NUMBER OF WORKERS

0.4

NET PERCENT OF OWNERS INCREASING EMPLOYMENT FIRST MONTH EACH QUARTER

MAY JUNE

15

5 0 -5 -10 -15 -20

SEASONALLY ADJUSTED

15

'0 9 '1 2

'0 0 '0 3 '0 6

97

94

91

88

85

82

-25

79

Percent of Firms

10

PREDICTED AND ACTUAL UNEMPLOYMENT RATE ACTUAL

10 8 6

15

'12

'09

'06

'03

97 '00

94

91

88

85

82

79

4

76

Percent of Firms

PREDICTED

PERCENT OF OWNERS INCREASING OR REDUCING EMPLOYMENT INCREASED

30

REDUCED

FIRST MONTH IN EACH QUARTER+MAY+JUNE

20 15 10 5

97 '0 0 '0 3 '0 6 '0 9 '1 2 15

94

91

88

85

82

0

79

Percent of Firms

25

CAPITAL EXPENDITURES AND INVENTORY INVESTMENT

ACTUAL CAPITAL OUTLAYS % SPENDING

75

%SPEND + LEASE

+ MAY JUNE

LEASING ADDED 65 60 55 50

FIRST MONTH IN EACH QUARTER

45

15

'1 2

'0 9

'0 6

'0 3

'0 0

97

94

91

88

85

40

82

Percent of Firms

70

PLANNED CAPITAL OUTLAYS (NEXT SIX MONTHS) FIRST MONTH EACH QUARTER

+ MAY JUNE

45

35 30 25 20

'1 2 15

'0 6 '0 9

'0 0 '0 3

94 97

88 91

82 85

15

76 79

Percent of Firms

40

INVENTORY INVESTMENT PLANS [% PLAN INCREASE – % PLAN DECREASE]

FIRST MONTH EACH QUARTER

+ MAY JUNE

10 5 0 -5 -10 -15

'1 2 15

'0 6 '0 9

'0 0 '0 3

97

94

91

88

85

82

79

SEASONALLY ADJUSTED

76

Percent of Firms

15

THE DEBT DEATH SPIRAL

“EXCESS” CONSUMER DEBT: PAYING FOR THE “PARTY” DEBT=.8*DISPOSABLE INCOME 16000 14000

ACTUAL

MAINTAINING DEBT/INCOME RATIO IN 1999

12000 ($000)

10000 8000 6000 4000 2000 0

Federal Reserve/Haver Analytics

90

93

96

99

'02

'05

'08

'11

'14

CONSUMER NET WORTH NET WORTH

80

BELIEVABLE???

HOUSING

60

DOT COM 40 20 0

Federal Reserve/Haver Analytics

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 '0 0 '0 2 '0 4 '0 6 '0 8 10 12 14

TRILLIONS OF DOLLARS

100

5

NET WORTH PER DOLLAR OF GDP

BUBBLE????

BUBBLE 4.5

BUBBLE 4

AVERAGE 1970-1994

3.5

3

RECESSION Federal Reserve/Haver Analytics

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 '0 0 '0 2 '0 4 '0 6 '0 8 10 12 14 16

RATIO OF WEALTH TO GDP

CONSUMER NET WORTH RELATIVE TO GDP

STOCKS AND BONDS BOND INDEX (left)

S&P STOCKS (right)

140

2500

120

2000

100 1500

80 60

1000

40 500

20

HAVER ANALYTICS

0

0 90

95

'00

'05

'10

'15

SOME THINGS THE ELECTION HAS TAUGHT US

THE DEMOCRATS SWINGING FOR THE FENCE TOOK THEIR EYE OFF THE BALL

56

TRICKLE DOWN

ALWAYS FIND WAYS TO MAKE YOUR JOB INTERESTING