Small Business Confidence in a Lull | Green Mountain Scribes

Government reports seem upbeat, but Main Street is not so confident

WASHINGTON, D.C.? Rising just one tenth of one percent in January, the Small-Business Optimism Index settled at 93.9, a slight increase from the December 2011 reading, according to the National Federation of Independent Business (NFIB). While the increase marks five consecutive months of improvement, the readings from January and February 2011 were higher, indicated no net gain for the calendar year. Historically, optimism remains at recession levels. While owners appeared less pessimistic about the outlook for business conditions and real sales growth, that optimism did not materialize in hiring or increased inventories plans.

?The most positive statement that can be made about January?s reading is that the Index did not go down; a change of 0.1 points is essentially no change and it is hardly indicative of a surge in economic activity,? said NFIB Chief Economist Bill Dunkelberg. ?Nothing happened last month that would significantly improve the small-business outlook; Washington is at a stalemate. The Index remains below its level a year ago of 94.1 which means that no progress was made in 2011. Congress has failed to pass a budget for over 1,000 days, and without discipline on spending or any budgetary priorities, there is no path to fiscal sanity in Washington. U.S. debt is now larger than our GDP, and headed in the wrong direction. This does not make for a comforting future, a fact reflected by low consumer and small-business owner optimism.?

A retrospective upon the last 12 months of the Index suggests that for small-business owners, 2011 was a ?flat? year. While the Index is edging in a positive direction, January 2012?s survey indicates that the economy will continue to crawl along at a slow and weak pace.

Some other highlights of January?s Optimism Index include:

• NFIB reports of job growth improved (0.15) from December, but only to net zero (0) new workers per firm. The Bureau of Labor Statistics (BLS) report issued on February 3rd showed relatively strong job creation for January; NFIB?s data suggest that there will be some downward revision in BLS numbers, especially in light of the adjustments in the Household Survey that suggested a huge number of adults left the labor force. Seasonally adjusted, 11 percent of owners added an average of three workers per firm over the past few months, while 11 percent reduced employment an average of 2.9 workers per firm. The remaining 78 percent of owners made no net change in employment. Owners reporting reductions in employment remained relatively low, suggesting that firms are through cyclically adjusting their employment. Reports of workforce reductions are at their lowest level since October 2007. Forty-one percent of owners hired or tried to hire in the past three months, but 31 percent reported few or no qualified applicants for the position(s). The increase in the percent of owners with hard to fill job openings indicates that job markets are tightening somewhere, and correctly anticipated a decline in the unemployment rate.
• The frequency of firms that reported making capital expenditures over the past six months lost one point, declining to 55 percent, but still retaining the solid gain posted in December. The record low of 44 percent was reached most recently in August 2010. Of those making expenditures, 38 percent reported spending on new equipment (down 4 points), 20 percent acquired vehicles (unchanged), and 13 percent improved or expanded facilities (unchanged). Six percent acquired new buildings or land for expansion (up 1 point) and 11 percent spent money for new fixtures and furniture (down 2 points). While the spending picture has improved, it still falls short of ?normal?. The percent of owners planning capital outlays in the next three to six months held at 24 percent; this is the highest reading in years, but still 10 points lower than those typically seen in an expanding economy.
• The net percent of owners expecting better business conditions in six months was a negative 3 percent, 5 points better than December but still 13 percentage points below last year?s reading. Not seasonally adjusted, 18 percent expect deterioration (down 4 points), and 22 percent expect improvement (up 7 points). A net 10 percent of all owners expect improved real sales volumes, up 1 point and the strongest reading since the beginning of the year. Twenty-two percent report ?poor sales? as their top business problem, down 1 point, but still the top business problem reported.
• Increasing 3 points over December, a net negative 7 percent of all owners (seasonally adjusted) reported growth in their inventories. January marks 56 consecutive months during which reported inventory reductions have outnumbered reported increases. Unadjusted, 11 percent reported growth in inventory stocks (unchanged) and 22 percent reported inventory reductions (up 1 point). More owners reported weaker sales quarter on quarter than improvements, so demand can be met by reducing inventories on hand. Overall, it appears that small-business owners have reduced inventories to acceptable levels given the outlook for sales growth. Without improved sales, there is little motivation to order new inventory stocks. Plans to add to inventories dropped 5 points, arriving at a disappointing net negative 3 percent of all firms (seasonally adjusted). This drop is notable because December?s reading was the best in 18 months.
• Eighteen percent of the NFIB owners reported raising their average selling prices in the past three months (up 1 point), and 17 percent reported price reductions (down 1 point). Seasonally adjusted, the net percent raising selling prices was -1 percent, down a point from December. The frequency of price increases was highly concentrated in the Wholesale (a net 14 percent raised prices) and Retail (net 4 percent raised). Those cutting prices exceeded those raising prices by 14 percentage points in Construction and Agriculture, largely a result of seasonal impact. Twenty-three (23) percent of owners plan to raise average prices in the next few months, while 3 percent plan reductions. Seasonally adjusted, a net 17 percent plan price hikes up 3 points. With some evidence that spending has picked up, some of these price hikes might stick.

Today?s report is based on the responses of 2,155 randomly sampled small businesses in NFIB?s membership, surveyed throughout the month of January. Download the complete study at http://www.nfib.com/sbetindex.

NFIB?s Small Business Economic Trends is a monthly survey of small business owners? plans and opinions. Decision makers at the federal, state and local levels actively monitor these reports, ensuring that the voice of small business is heard. The NFIB Research Foundation conducts some of the most comprehensive research of small business issues in the nation. The National Federation of Independent Business is the nation?s leading small business association. A nonprofit, nonpartisan organization founded in 1943, NFIB represents the consensus views of its members in Washington and all 50 state capitals.

AFS/GMS via National Federation of Independent Business (NFIB)

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