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Are you supporting small businesses? — Week of April 22, 2024

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Bigger part of the economy than you think

Essential Economics

— Mark Frears

 

Lansing State Journal

In junior high (what we called it before middle school), I “threw papers” to make spending money. It was an afternoon delivery, and I loaded up the bags, slung them across my shoulders, and walked the neighborhood. This helped me learn about business, as I had to pay for the papers up front, and then collect payment from my customers. Fewer collections, and my margin shrank!

Small businesses employ more than 90% of the workers in the U.S. and contribute more than 40% to Gross Domestic Product (GDP). Let’s take a deeper look at this sector.

Potential longer-term impact

The National Federation of Independent Business (NFIB) is an association of small businesses, and their monthly release is watched carefully for clues. In the March report, as you can see below, their sentiment index was very dismal.

line graph- NFIB U.S. Small Business Optimism Index

Source: Piper Sandler

This is down to recessionary levels, and the primary reasons are inflation and employment. The chart below gives an update on their labor market. Currently, fewer firms are struggling to fill open job positions. Also, the quits rate has trended to below average levels as fewer people feel comfortable about easily getting another job.

line graph- US: NFIB unfilled position & quits

Source: Oxford Economics / Haver Analytics

The potential slowdown in small business hiring will ripple through the economy, but so far, large firms are offsetting this. On the inflation front, small businesses are more dependent on floating rate loans, and the longer the Fed leaves short-term rates unchanged, the longer Prime rate stays higher. As the chart below shows:

line graph- US: Bank prime loan rate & NFIB short-term loan rates

Source: Oxford Economics / Haver Analytics

You can see the contrast between large and small businesses below. That call for recession may not be fully off the table yet.

line graphs: big vs small business bifurcation

Source: Piper Sandler

Economic releases

Last week was Retail Sales and Housing. The economy continues to do well and move the markets into a Fed-on-hold mentality. In addition, Middle East tension is escalating and uncertain. Markets don’t like uncertainty.

This week’s calendar has Personal Income and Spending, Durable Goods and first guess at Q1 GDP, as well as the Fed’s favorite inflation metric, PCE. In addition, the Fed “talking heads” will be in blackout ahead of the April 30 to May 1 meeting. See below for details.

Wrap-Up

Small businesses are so important to the health of the economy. Where can you contribute? The profits from my paper route allowed me to buy an aluminum canoe, which is still at our cottage today.

 Upcoming Economic Releases:PeriodExpectedPrevious
22-AprChicago Fed Natl Activity IndexMar0.09 0.05 
     
23-AprPhiladelphia Fed Non-Manuf ActivityAprN/A(18.3)
23-AprS&P Global US Manufacturing PMIApr P52.0 51.9 
23-AprS&P Global US Services PMIApr P52.0 51.7 
23-AprS&P Global US Composite PMIApr P52.0 52.1 
23-AprNew Home SalesMar670,000 662,000 
23-AprNew Home Sales MoMMar1.2%-0.3%
23-AprRichmond Fed Manufacturing IndexApr(8)(11)
23-AprRichmond Fed Business ConditionsAprN/A(8)
     
24-AprDurable Goods OrdersMar P2.5%1.3%
24-AprDurable Goods ex TransportationMar P0.2%0.3%
24-AprCap Goods Orders Nondef ex AircraftMar P0.2%0.7%
     
25-AprGDP Annualized QoQQ12.5%3.4%
25-AprPersonal ConsumptionQ12.8%3.3%
25-AprGDP Price IndexQ13.0%1.6%
25-AprRetail Inventories MoMMarN/A0.5%
25-AprWholesale Inventories MoMMar P0.3%0.5%
25-AprInitial Jobless Claims20-Apr215,000 212,000 
25-AprContinuing Claims13-Apr1,810,000 1,812,000 
25-AprPending Home Sales MoMMar-0.3%1.6%
25-AprKC Fed Manufacturing ActivityAprN/A(7)
     
26-AprPersonal IncomeMar0.5%0.3%
26-AprPersonal SpendingMar0.6%0.8%
26-AprReal Personal SpendingMar0.3%0.4%
26-AprPCE Deflator YoYMar2.6%2.5%
26-AprPCE Core Deflator YoYMar2.7%2.8%
26-AprUM Consumer SentimentApr F77.9 77.9 
26-AprUM Current ConditionsApr FN/A79.3 
26-AprUM ExpectationsApr FN/A77.0 
26-AprUM 1-yr inflationApr FN/A3.1%
26-AprUM 5-10-yr inflationApr FN/A3.0%
26-AprKC Fed Services ActivityAprN/A

Mark Frears is a Senior Investment Advisor, Executive Vice President, at Texas Capital Bank Private Wealth Advisors. He holds a Bachelor of Science from The University of Washington, and an MBA from University of Texas – Dallas.

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