Real Economic Growth Elusive

The NFIB Small-Business Optimism Index fell during the month of March, largely due to lower readings on expected sales and hiring plans. This decline in March followed six successive months of increases in the index. The lower than expected reading was another recent indication that hiring, and therefore the economy, are not as robust as expected. In my mind, the lower than expected sales and hiring amongst small businesses reinforces my earlier comments about a supply-driven economy. The Fed can stimulate the economy by encouraging businesses to invest capital, but the demand-side likely remains weak due to excessive consumer debt. The result is declining productivity and modest-to-negative real economic growth.

I believe the economy may produce increasingly bearish signs, albeit mixed over the next few months. Treasuries may not be the best opportunity, in my mind, since yields have already fallen. Instead, I may focus on the equity market and the potential pullback in valuations.

NFIB’s Small Business Economic Trends is a monthly survey of small-business owners’ plans and opinions. For March, the survey is based on 757 responses from NFIB members.