12/9/2014
By Jennifer Coombs

The National Federation of Independent Business (NFIB) released its monthly reading of the small business optimism index, which for the month of November popped 2.0 index points to a reading of 98.1. This is the highest reading of the recovery, going back to February 2007, and higher than the index’s historic average of 98.0. Strength during the month was led by a large gain in expectations that the economy will improve as well as an increase in the expectation for higher sales. Inflation readings are still quite low, earnings trends show a relatively small gain, while plans to increase employment increased just slightly. The spike in optimism correlates almost perfectly with the results of the November mid-term elections which saw the Republicans take control of the House and Senate. Below is a historic chart of the small business index, where the historic average of 98.0 is denoted by a dotted-line.

Next, the October reading for the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) didn’t change much from the previous month. There were 4.834 million job openings as of the last day of October, which was little changed from the 4.685 million openings in September. New hires came in at 5.055 million while total separations came in at 4.824 million – both of which held steady in October.

The most noteworthy part of the report is the quits rate, which are generally voluntary separations initiated by the employee, and therefore, can serve as a measure of workers' willingness or ability to leave or change jobs. The quits rate was little changed in October at 1.9% which is still pretty awesome given the surprise pop from last month. Also noteworthy was that the quits rate outpaced the layoffs and discharges rate at 1.2% - the same as the previous month. Below is a chart denoting the openings and quits over the last ten years. Openings have surpassed pre-recession levels while quits are making a slow but steady comeback.

Lastly, wholesale inventories were steady in October, increased by 0.4% while sales rose by 0.2%. This results in the stock-to-sales ratio remaining unchanged for a third month at a relatively lean and healthy 1.19. Details of the report show a noticeable draw relative to sales for computer equipment, farm products, chemicals and furniture. On the other hand, inventory builds relative to sales were rather difficult to find, but include drugs and miscellaneous goods in the nondurables category. Autos wholesale inventories fell rather sharply in the month but sales also declined, so there’s a seemingly better balance. However, due to the huge gain in auto sales during the month of November, there should be a big draw in auto inventories on next month’s report.

Jennifer Coombs
Wall Street Strategies

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