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Bespoke: Small Business Sentiment -- "Pessimism Is Contagious"

FYI: Sentiment on the part of small business owners declined in August and based on the steep drop in interest rates and escalation of the trade war with China, you can't really blame business owners for becoming more cautious. Overall, the main index of sentiment dropped from 104.7 down to 103.1, which was 0.4 points lower than the 103.5 consensus expectation. In the commentary of the report, the NFIB noted that "in terms of real economic activity, August was a very good month," and went on to say that "the decline in the index was driven by weakened expectations for the future." One line that stood out from this month's report was the statement that "Pessimism is contagious, even when the real economy is doing well, expectations can be infected and turn sour. Those rooting for a recession are having a psychological impact in spite of a strong Main Street economy." While the statement isn't entirely inaccurate, we would note that the escalation of tariffs and rhetoric from the President certainly hasn't helped either.

Looking at the chart below, it has now been a full year since the NFIB Small Business Index made its peak for the cycle. While it isn't far from that level now, it has shown signs of rolling over in the last few months. If the lows from January are breached, depending on your political perspective, that would suggest that either it's more than just news headlines driving down sentiment or that the headlines actually won out.
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