Small Business Sentiment Mixed Under the Hood Tue, Dec 12, 2023 The NFIB unveiled its latest look at small business sentiment early this morning. The headline number remains in the bottom decile of its historical range, falling 0.1 points to 90.6 in November. That is compared to expectations which called for the number to be unchanged last month. Across the categories factoring into the index, breadth was mixed in November with four categories falling, four rising, and one unchanged. Like the headline number, many categories are also in the bottom few percentiles of their respective historical ranges, albeit with some exceptions like robust readings in plans to increase employment, current inventories, and job openings hard to fill. As we discussed in our Morning Lineup, combining the report's readings on employment shows some rebounding conditions for labor markets over the past few months. Looking more closely, though, it is hard to say labor market conditions are materially accelerating. As shown, hiring plans have risen, but on net more companies are reporting negative employment changes. In a similar vein, compensation plans have risen sharply including a six point jump month over month in November (the largest one month increase since last October and the third largest on record), even though actual changes to compensation have been flat. Meanwhile, fewer businesses are reporting job openings are hard to fill. Small businesses are showing labor conditions have cooled over the past couple of years but are far from weak as any more recent improvements have been from plans rather than observed changes. Similarly, sales expectations rebounded in November, contrary to a flat reading on actual sales and earnings changes. Perhaps most importantly, the share of businesses reporting higher prices has fallen down to 25, matching the July low. In combination with the higher reading on sales expectations, that likely helped the number of firms reporting now as a good time to expand. Looking at the reverse, of those reporting now as not a good time to expand, the single biggest reason given for such sentiment was economic conditions. That is typically the most widely cited reason historically followed by political climate (the NFIB has a tendency to be sensitive to politics, namely which party holds the presidency), but for the first time in at least a decade, financial conditions and interest rates earned the number two spot. As shown below, the number of firms reporting that rates are holding them back from expanding has risen steadily since the current tightening cycle began. As mentioned previously, actual earnings changes saw no improvement in November and are sitting near historically weak levels. As for the reasons given for lower earnings, increased costs remain a key reason, but November also saw a significant jump in those reporting sales volumes as a problem. In other words, inflation and weaker demand appear to be weighing on small business earnings. Despite the burden of interest rates and expectations for credit conditions sitting at the lowest levels in over a decade, small businesses have actually increased capital expenditures dramatically to a new post-pandemic high. However, that is counter to capital expenditure plans, which have fallen in the past few months, and inventories showing drawdowns.
January 2024 Almanac: Historically Solid, But Weaker in Election Years January has quite a reputation on Wall Street as an influx of cash from yearend bonuses and annual allocations has historically propelled stocks higher. January ranks #1 for NASDAQ (since 1971), but sixth on the S&P 500 and DJIA since 1950. January is the last month of the best three-consecutive-month span and holds a full docket of indicators and seasonalities, our Santa Claus Rally ends on the close on January 3, the First Five Days early warning system reports on the close on January 8 and the full-month January Barometer at month’s end. DJIA and S&P January rankings slipped from 2000 to 2022 as both indices suffered losses in 13 of those 24 Januarys with three in a row in: 2008 to 2010, 2014 to 2016 and then again from 2020 to 2022. January 2009 has the dubious honor of being the worst January on record for DJIA (-8.8%) and S&P 500 (-8.6%) since 1901 and 1930 respectively. Covid-19 spoiled January in 2020 & 2021 as DJIA, S&P 500, Russell 1000, and Russell 2000 all suffered declines in 2020. In 2021, DJIA, S&P 500 and Russell 1000 declined. In 2022 surging inflation, that reached multi-decade highs, stoked fears of higher interest rates. Fears were ultimately validated as a bear market ensued. In election years, Januarys have been weaker. DJIA and S&P 500 slip to number #8 and DJIA average performance dips negative. NASDAQ slips to #4, but average performance remains respectable at 1.7%. Russell 2000’s average performance of 0.8% is the result of all five advancing Januarys gaining over 4% which offsets the losses in six other election-year Januarys.
First Five Days Negative, Trifecta 0 for 2 S&P 500 was down 0.1% for our First Five Day (FFD) early warning system is negative. Since 1950, the previous 26 down FFD were followed by 14 up years and 12 down with an average gain in all years of just 0.3%. The last negative FFD was in 2022 when S&P 500 declined 1.9%. In 2022, S&P 500 went on to decline 5.3% in January and thus our January Barometer (JB) was negative. For 2022, S&P 500 was down 19.4%. Last week the Santa Claus Rally (SCR) was negative, and today the FFD was negative. At this juncture there are two possible outcomes remaining for our January Indicator Trifecta. Our JB can either be positive or negative. The historical results of both are visible in the following tables. A positive JB would certainly boost prospects for full-year 2024 even after down FFD and negative SCR. Following the previous three occurrences when the SCR and FFD were negative and the January Barometer was positive, S&P 500 advanced three times over the remaining eleven months and for the full year with average gains of 15.1% and 19.9% respectively. The December Low Indicator (2024 STA, page 36) should also be watched with the line in the sand at the Dow’s December Closing Low of 36054.43 on 12/6/2023.
January Monthly OpEx Week Bearish Over the past 25 years, since 1999, S&P 500’s performance during January’s option expiration week has been mixed with a negative lean. Friday has been up 13 and down 12, and the entire week has been down 16 times with an average weekly loss of 0.72%. DJIA’s record on Friday and the week after is similar to S&P 500. DJIA has performed modestly better during expiration week with 12 advances, but its average loss is larger at 0.89%. NASDAQ holds no observable advantage over S&P 500 and DJIA with mild average losses on Friday, during the full week and the week after.
Empire Collapses In Spite of Expectations Tue, Jan 16, 2024 The economic data slate was light to kick off the holiday-shortened week with the only release of note being the NY Fed's Empire State Manufacturing Survey. The report came in catastrophically worse than forecasted. Forecasts were calling for the index to improve from a reading of -14.5 in December up to -5 this month. Instead, the headline reading collapsed down to -43.7. As shown in the chart below, that's the lowest level since the spring of 2020 and before that, there was never a lower reading in the 20+ year history of the survey. Taking a look under the hood, below we show a breakdown of each category of the report as well as its reading the previous month, the month-over-month change, and how those rank (as a percentile) versus all months of the survey's history. Obviously, with only a couple of months with lower readings, the headline number is in the bottom 1% of all readings on record. The same goes for New Orders and Shipments which were the key drivers of weakness this month. Additionally, it is worth noting that each of those categories was already sitting at historically contractionary levels (ranking in or close to the bottom deciles of their respective historical ranges) in December. While the month-over-month decline was much smaller in January, Unfilled Orders is also down near record lows. That is not to say all areas of this month's report deteriorated. Delivery Times, Prices Paid, and Number of Employees each rose month over month as did nearly all categories for six-month expectations. Again, the two biggest declines in January were New Orders and Shipments. Like the headline number, the only period with lower readings was the spring of 2020. The fresh low in Unfilled Orders has surpassed the onset of the pandemic for the lowest reading since November 2010. Inventories are not exactly strong with the current level also in contraction, however, that category is much more elevated than others, currently ranking in the 30th percentile. As previously noted, while current condition indices have collapsed, the same moves have not been observed for expectations. To quantify this dynamic, below we take the spread of each category's current condition index and expectations index and average across each one. As shown, the January reading dropped significantly and is now at historic lows. Again the only comparable lows to draw from were early on in the pandemic as well as late 2001, only a few months into the survey's history. That means New York area manufacturers have observed a material and significant slowdown in their businesses, but that has yet to show any impact on the level of optimism looking forward.
The Most Shorted Names Suffer Tue, Jan 16, 2024 Equities have generally been consolidating to start out 2024, but one group that has gotten outright punished is those stocks that possess the highest levels of short interest. In the chart below we've broken the large-cap Russell 1,000 into deciles (10 groups of 100 stocks each) sorted by the stocks with the highest to lowest short interest as a percent of equity float as of the end of last year and show each group's average performance year to date. Whereas the average stock in the index is down 2.34% so far this year, the 100 stocks in the index with the highest short interest levels are already down 8.76%. That is significantly more than the second most heavily shorted decile which has averaged a decline of only 2.81%. Notably, the decile of least shorted stocks is actually up 0.41% so far this year on average. Looking more closely at the decile of most heavily shorted stocks, it's filled with names that have already fallen in excess of 20-30% YTD like EV-related names Lucid (LCID), Chargepoint (CHPT), and Plug Power (PLUG). Solar stocks like Sunrun (RUN), crypto adjacent names like Coinbase (COIN), and meme stock mania names like AMC Entertainment (AMC) and GameStop (GME) also find themselves on this list and have already seen double digit declines year to date. The most recent short interest data through the end of last year was released just last week. Below we show the average reading for each industry in the Russell 1,000. Across the whole of the index, the average stock has 3.87% of float shorted. Readings are close to or more than double that for Discretionary Retail and Autos at 9.1% and 7.6%, respectively. Media & Entertainment, Transportation, and Consumer Services are the only other sectors that average more than 5% of float shorted. Meanwhile, Insurance, Utilities, Banks, and Commercial and Professional Services are some of the least shorted industries. As previously mentioned, some of the worst performing stocks this year have been those with the highest levels of short interest. In the table below, we show the 30 Russell 1,000 stocks that currently have the highest short interest as a percentage of float. Recent IPO Maplebear, or Instacart (CART), tops the list with almost 29% short. That is actually down versus the mid-December reading though back then it was again higher than any other Russell 1,000 member. There are seven other names with more than a quarter of float shorted: Sirius XM (SIRI), Plug Power (PLUG), Lucid (LCID), Kohl's (KSS), Medicap Properties (MPW), Birkenstock (BIRK), and Celsius (CELH). One thing that is notable is that while many of these highly shorted stocks are underperforming, some exceptions are those that have more recently IPO'd. For example, CART, BIRK, and CAVA are some of the few from this list that are up on the year. Granted, their gains are not nearly as solid of Celsius (CELH) which has completely distanced itself from the rest of the pack, rising 11.4%.
February 2024 Almanac: Second Worst S&P 500 Month since 1950 February is in the middle of the Best Six Months, but its long-term track record, since 1950, is not that impressive. February ranks no better than sixth and has posted meager average performance except for the Russell 2000. Small cap stocks, benefiting from “January Effect” carry over; historically tend to outpace large-cap stocks in February. The Russell 2000 index of small cap stocks turns in an average gain of 1.0% in February since 1979—sixth best month for that benchmark. Russell 2000 has had a tough January which could indicate the January Effect may not boost small caps this February. A strong February in 2000 boosts NASDAQ and Russell 2000 rankings in election years. Otherwise, February’s performance, compared to other presidential-election-year months, is mediocre at best with no large-cap index ranked better than tenth (DJIA and S&P 500 since 1950, Russell 1000 since 1979).
Sliding Down on the Market Cap Ladder Wed, Jan 24, 2024 There are any number of ways to illustrate the disparate performance of individual stocks based on market cap this year, but the chart below really drives the point home. The blue lines show the YTD performance of each stock in the S&P 500 starting with the largest in terms of market cap on the left all the way down to the smallest companies on the right. YTD, the second-best performing stock in the S&P 500 - Nvidia (NVDA) – is also the fifth largest company in terms of market cap. Besides NVDA, the only two other stocks up at least 15% YTD are Palo Alto Networks (PANW) and Juniper (JNPR). While just three stocks are up over 15%, seven are down over 15%, including Archer Daniels Midland (ADM) and Boeing (BA) which is down nearly 19%. While the blue line shows the performance of the individual components, the red line shows the rolling 20 stock performance where the leftmost point on the line represents the performance of the 20 largest stocks in the S&P 500. As shown, the group of 20 stocks with the strongest YTD performance this year is right near the top of the market cap list (stocks 5 through 24 which includes NVDA and AMD). While there are exceptions, the main trend this year has been that the further you move down the market cap ladder, the weaker the YTD returns. The 20 smallest stocks in the S&P 500 also have the worst performance of any other point in the series. Not only that, but 17 of the 20 smallest stocks in the S&P 500 are down YTD, including each of the smallest sixteen. Breaking the S&P 500 into deciles based on market cap further illustrates this pattern. While 78% of the 50 largest stocks in the S&P 500 are up YTD with an average gain of 3.65%, less than a quarter of the 50 smallest stocks in the index are up YTD, and the average performance of those 50 stocks is a decline of 4.18%. If 2024 is going to be the year of broadening, it's getting off to a slow start.
Typical February Performance: Weakness After Mid-Month Peak Over the last 21-years the first trading day of February was bullish for DJIA, S&P 500, NASDAQ, Russell 1000 and 2000. Average gains on the first day range from 0.39% by DJIA to 0.75% by Russell 2000. After a strong opening day, strength has tended to fade until around the seventh trading day. From there until around the 12-trading day all five indexes have historically enjoyed gains. But those gains have not held until the end of February with a peak occurring around mid-month. By the end of February, only NASDAQ and Russell 2000 have remained slightly positive while DJIA, S&P 500, and Russell 1000 turn negative.
Regional Fed Forecasts Fall Short Mon, Jan 29, 2024 Today's data slate was light with the only release of note being the Dallas Fed's monthly manufacturing survey. The results were disappointing to say the least as the headline number came in at -27.4, more than twice as low as expectations of -11.8. The huge miss relative to forecasts is not exactly new though. Earlier this month, the Kansas City survey and New York Fed survey likewise came in well below estimates. Using data from our Economic Indicator Database, below we show the average spread between the actual release value and economist forecast of each regional Fed manufacturing survey (Empire, Philadelphia, Richmond, Kansas City, and Dallas) since 2011. As shown, this January has seen outright massive misses. Only two other months have seen readings disappoint to wider degrees: December 2018 and March 2020. In tonight's Closer we will provide an updated look at our Five Fed Manufacturing Composite which creates a composite of each of these reports to gauge national manufacturing activity.
One Worry Right Now? The Calendar. “I’ve been on a calendar, but I’ve never been on time.” -Marilyn Monroe The S&P 500 fell slightly last week. It was probably due to happen, as this comes on the heels of the first time in history the index was higher 14 out of 15 weeks while advancing more than 20%. In other words, some type of a pause would be perfectly normal. Looking at last week’s weakness, it was mainly due to large tech and communication services names, while areas like small and mid-caps actually gained on the week. We all know how well the largest tech names have done over the past year, so some potential weakness taking place is noteworthy. But then, there are always opportunities somewhere and if we do see continued rotation out of some of the highfliers we wouldn’t be surprised to see flows move to some of the under-loved areas of the market like small and mid-caps. Take note that February is typically one of the weaker months of the year, but most of that weakness happens the second half of the month. Since the first half of February was strong, we’d suggest being open to possible weakness over the coming weeks. Additionally, our Carson Cycle Composite suggests the potential for a break heading into late March is quite high. This composite looks at various types of years and combines them into one cycle. We look at the average year, average year the past 20 years, year four of the Presidential cycle, and year four of a new President, the year after a 20% gain, and years that had a higher January. As you can see here, combining all those years has the potential for near-term weakness on alert. We Aren’t Alone Anymore This time a year ago we would tell anyone who would listen that the economy was likely going to avoid a recession and stocks were going to have a great year. Not many agreed (it felt like no one agreed to be honest), but fortunately things played out as we expected. We are now noticing many others are coming around to our more optimistic views, which is why we called our 2024 Outlook Seeing Eye to Eye. But in the near term, to see many bulls coming into the fold is a potential concern. I’ve even seen some of the more vocal perma-bears from last year claiming they are now bullish. Of course, they blame the Fed or United States Secretary of the Treasury Janet Yellen for the rally, as if they have some magic button that creates a bull market. They don’t and they surely don’t have an easy button that lets productivity grow at 3.9% annualized the past three quarters either. The stock market is strong because corporate profits are improving, the consumer is healthy, inflation is trending lower, and the Fed is likely going to start cutting over the coming months. Multiple sentiment polls are indeed showing big jumps in optimism, which has my contrarian bell dinging. I’m a big fan of the Bank of America Global Fund Manager Survey and it just showed overall sentiment at the highest level in two years. Now note, this is still nowhere near previous peaks, which says we could have a ways to go before the ultimate peak, but this jump in optimism should be noted. One more from that recent GFS that caught my attention was the number of managers looking for ‘no landing’ is jumping. If you’ve followed us then you know all of last year Sonu Varghese, VP, Global Macro Strategist, was saying the plane had plenty of fuel and never needed to land, but it appears others are finally catching onto what he was saying all along. This is fine, but from that contrarian point of view is worth noting. Since avoiding a recession is normal, falling concern about the economy isn’t contrarian in itself, but we do lose some of the potential extra fuel from bearish views unwinding. The Valentine’s Day Indicator Flashes Green, Not Red We want to be clear here. Should stocks take a well-deserved break, we would still expect likely higher prices by year end. The economy remains on a firm footing overall, we expect to see record earnings this year, profit margins are curling higher, business investment is strong, inflation overall remains in a downtrend, and the Federal Reserve Bank (Fed) will likely begin cutting over the coming months. We were bullish all of last year, when many others were forecasting a recession and a bear market. Fortunately, we continue to see many positives out there overall. Here’s one more bullish bullet point. The S&P 500 was up more than 4% for the year on Valentine’s Day, which trigged a positive Valentine’s Day Indicator. We found 28 other times stocks were up at least 4% for the year on this day and the rest of the year was quite green, higher 26 times (92.9% of the time) and up more than 13% on average, compared with the average year up 7.5% and higher 73.0% of the time.
DJIA and S&P 500 Down 15 of Last 19 on February’s Last Day Before the market can close the books on February, it still must contend with its historically weak last trading day. Since 1996, the S&P 500 has declined 20 times in 28 years on the last day of February. DJIA and NASDAQ have been just as bearish. Average losses on the last day range from –0.48% by DJIA to –0.39% from NASDAQ. The best gain on the day for the major averages was in 2000 while the worst decline was in 2008. In the leap years since 1950, DJIA and S&P 500 still lean bearish. DJIA has been down nine times in thirteen occurrences and S&P 500 has declined eight times. Average performance is –0.07% for DJIA and –0.06% for S&P 500. NASDAQ is slightly better in leap years, up five of nine, but down four of the last five. NASDAQ’s average performance is a meager +0.01%. More recently weakness appears to have only been intensifying as DJIA and S&P 500 have been down nine straight and 11 of the last 12. NASDAQ has tried to buck this bearish trend with three gains in the last four years. Should February’s last day see declines again this year, it could be a solid setup for the historically bullish first trading day of March.
Small Businesses Cut Employment and Spending Tue, Mar 12, 2024 Ahead of this morning's CPI release, the NFIB updated their Small Business Optimism Index. The headline reading dropped to 89.4 in February compared to 89.9 in January. That result is the reverse of what was expected as forecasts were penciling in the index to tick up to 90.5. With the lower reading, small business optimism returns to the low end of the past decade's range and is only 0.4 points above the post pandemic low set last April. Diving into the individual categories of the report, breadth was weak. As shown below, of the inputs to the headline number, there were only two categories that increased month-over-month: Expected Real Sales and Expected Credit Conditions. As for the categories that are not inputs, every single one fell versus January. Given these declines, many areas are sitting in the bottom decile of their historical ranges. One category in which declines are not exactly a bad thing in the current environment are the share of businesses reporting higher prices. While not an input to the headline index, the higher prices index fell another point down to 21. That is now the lowest reading in just over three years. Outside of the drop in the inflation reading, some declines in other categories were less reassuring. As we discussed in today's Morning Lineup, employment metrics were particularly weak. Hiring plans have fallen for three months in a row and are now at the weakest level since May 2020. The drop in compensation plans was even more dramatic falling 7 points month-over-month. In the history of the data going back to early 1986, the only time this index has fallen by more in a single month was April 2020. While businesses appear to be significantly curtailing plans for hiring and wages, the actual changes have been a bit more robust. The actual employment changes remains negative as it has throughout the post-pandemic period, and implying small businesses are on net firing rather than hiring. The compensation index is at the lowest level since May 2021, however, that level is basically consistent with the high end of the pre-pandemic range. The same would apply for those reporting job openings as hard to fill which came in at the lowest level since January 2021. Employment is not the only area that small businesses are reportedly cutting back on. Expenditure readings were also weak in the most recent report. For starters, Capital Expenditure Plans have reverted downwards to multi-month lows alongside actual changes to cap ex. Meanwhile, a net 7% of businesses report plans to cut down on inventories. That is a historically low reading in the bottom 1.5% of all months on record. Finally, we would note that small businesses have some of the highest expectations for credit conditions since mid-2022. The report also offers a look at the type of capital expenditures small businesses are making. That recent drop in capex appears to be driven in part by the largest category: equipment. Only 35% of respondents reported making such capital expenditures in the past six months, the lowest amount since April through December of 2020. Prior to that you'd need to go back to May 2014 to find as low of a reading.
Good Friday Boosts End Q1 But Weakens Q2 Start Over the past 34 years since 1990 the last trading day of Q1 has been plagued by end-of-quarter portfolio restructuring. DJIA is down 21 of 34 with an average loss of –0.24%. S&P is down 19 of 34 with an average loss of –0.04%. NASDAQ is up 20 of 34 with an average gain of 0.21%. Russell 2000 is up 25 of 34 with an average gain of 0.32%. When the day before the Good Friday market holiday is the last trading day of Q1 it’s a boost. DJIA is up 7 of 10, average 0.18%. S&P is up 7 of 10, average 0.29%. NASDAQ is up 6 of 8, average 0.51%. Russell 2000 is up 6 of 7, average 0.47%. First trading day of April/Q2 has a more positive history. Since 1990, DJIA is up 23 of 34 with an average gain of 0.21%. S&P is up 22 of 34 with an average gain of 0.13%. NASDAQ is up 18 of 34 with an average loss of –0.21%. Russell 2000 is up 17 of 34 with an average loss of –0.24%. Easter Sunday the day before the first trading day of April/Q1 has the reverse effect, it’s bad. DJIA is down 7 of 10, average –0.44%. S&P is down 6 of 10, average –0.48%. NASDAQ is down 7 of 8, average –0.84%. Russell 2000 is down 7 of 7, average –1.12%.
Q1 2024 Asset Class Performance + Big Winners and Losers Thu, Mar 28, 2024 The first quarter of 2024 ended with the S&P 500 (SPY) posting a total return of 10.4%. That was good enough to beat the Tech-heavy Nasdaq 100 (QQQ) and the blue-chip Dow 30 (DIA) on the large-cap front, and it also beat both mid-caps (IJH) and small-caps (IWM). The weakest of the various US index ETFs in Q1 was the small-cap value ETF (IJS), which was up just 0.06%. Looking at sectors, it was Energy (XLE), Financials (XLF), Communication Services (XLC), and Industrials (XLI) that posted double-digit percentage gains, while Real Estate (XLRE) was the only sector in the red with a decline of 0.65%. Outside of the US, there were some winners like Italy (EWI) and Japan (EWJ) and losers like Brazil (EWZ), Hong Kong (EWH), and China (MCHI). Commodity ETFs saw some big gains in Q1, although natural gas (UNG) fell sharply. While Treasury ETFs were up slightly in March, they finished Q1 slightly in the red. Below is a look at the average performance of Russell 1,000 stocks in Q1 broken out by sector. As shown, Energy stocks averaged the biggest gains in Q1 at 11.56%, followed by Industrials (10.08%) and Financials (9.61%). Notably, Tech stocks averaged a gain of just 4.86%, while Communication Services and Real Estate stocks averaged declines. Below is a look at the 30 best performing Russell 1,000 stocks in Q1. NVIDIA (NVDA) topped the list with an 82.5% gain, but surprisingly, a Utilities stock (VST) ranked second with a gain of 80.8%. AppLovin (APP), Shockwave Medical (SWAV), and Vertiv (VRT) rounded out the top five. When we crossed the list of big Q1 winners with our Bespoke AI basket, it's interesting that just three of the top thirty stocks are on our AI list: NVDA, VRT, and PSTG. There were plenty of non-AI and non-Tech stocks up big in Q1, like Williams-Sonoma (WSM), Crocs (CROX), Kellogg (KLG), Spotify (SPOT), and DoorDash (DASH). Not everything went up in Q1. Roughly a third of the Russell 1,000 finished the quarter in the red, while there were 49 stocks in the index that fell more than 20%. Below are the 30 stocks that did the worst in Q1, led by New York Community Bancorp's (NYCB) decline of 68.5%.
Inflation, Poor Sales, and Fewer Jobs Tue, Apr 9, 2024 The US data calendar has been light to start the week. Today, the only release of note was the NFIB's reading on small business sentiment. While the index was expected to tick up to 89.9 from 89.4 in February, it instead dropped down to 88.5. That is the weakest reading since December 2012. Given the weak headline number, breadth in this month's report was terrible. Of the inputs to the Optimism index, only two rose month-over-month. Of those falling categories, one of the more standout declines was an 8-point drop in expectations for real sales. While there have been even weaker readings over the past couple of years, that monthly decline ranks in the bottom 5% of all months on record. The survey also questions small businesses on what they consider to be their largest problems. These results echoed the deterioration in expectations for higher real sales. As shown below, the percentage of respondents reporting poor sales as their biggest issue has been on the rise. While 8% is far from a historically elevated reading, it is up significantly from the past two years. Poor sales are not the only concern that ticked higher. The first three months of 2024 have seen hotter-than-expected CPI prints (which we discuss market responses in tonight's Closer), and small firms are increasingly concerned with higher prices. As shown in the first chart below, a quarter of firms noted inflation as their single biggest problem. That erases any improvement in the reading since last May. Additionally, while the increase was much less pronounced, the higher prices index likewise ticked up. That returns this index to the top decile of its historical range. In today's Morning Lineup, we discussed the labor market indicators' weakness as well as the weakness in capex plans per this report's data. As shown below, each of these categories deteriorated in March with the exception of compensation (both actual and planned). The most significant decline has been hiring plans which is now down to the lowest levels since the spring of 2020. Prior to 2020, the last time the index was this low occurred in late 2016. While small businesses have cut back on hiring plans, they are also reporting job openings as hard to fill at similar levels to before the pandemic.
