Small Business Still Negative, But Expecting Some Improvement

Small Business Still Negative, But Expecting Some Improvement

The Quarterly NFIB Research Foundation Small Business Economic Trends Data reports that the Index of Small Business Optimism rose 2.9 points to 91.1 (1986=100), continuing one of the longest strings of recession level readings in the history of the survey (started in 1973). Two-thirds of the gain was due to a dramatic improvement in the percent of owners expecting the economy to improve over the next six months, says the report. Though the direction of change was positive, there's a long way to go to restore normal levels of the Index to the average reading of 100.

Seasonally adjusted, there was a decline in average employment per firm of 0.04 workers reported by small business owners in August, not as bad as July, but still on the negative side.

  • 11% of the owners increased employment by an average of 5.7 workers per firm 15%  reduced employment at average of 3.7 workers per firm (seasonally adjusted)
  • 46% of the owners hired or tried to hire (down 3 points)
  • 76% of those trying to hire reported few or no qualified applicants for the job openings they were trying to fill
  • 9% of the owners reported that the availability of qualified labor was their top business problem, one point lower than July
  • 15% reported unfilled job openings, down 2 points from July (the 34 year average is 22 percent)

Over the next three months, 13 percent plan to create new jobs (up 1 point), and 10 percent plan workforce reductions (unchanged), yielding a seasonally adjusted net 9 percent of owners planning to create new jobs, 4 points better than July.

The frequency of reported capital outlays over the past six months rose 2 points to 54 percent of all firms, still at "recession" levels historically. The weak economy has reduced the need for expansion and new equipment and put pressure on cash flows.

Inventory reduction has been heavy for the past three months, confirmed by the second quarter Gross Domestic Product estimates.

  • A net negative 13%  of owners reported gains in inventory stocks (more firms cut stocks than added to them, seasonally adjusted), the fifth negative double digit month in a row
  • 11% reported gains and
  • 23% reported inventory reductions
  • For all firms, a net negative 3% reported stocks too low (seasonally adjusted), 1 point better than July

The net percent of owners expecting gains in real sales volumes improved to a net negative 6 points (up 3 points) seasonally adjusted, still 20 points below last September's reading, but 5 points better than the May-June readings.

At "street level", the inflation picture remained sour. The net percent of owners reporting higher average selling prices dropped 6 points to a net 26 percent in August (seasonally adjusted)

  • 38 percent reported raising average selling prices, down 4 points
  • 13 percent reported lower selling prices, up 2 points from July

The percent of owners citing inflation as their number one problem fell 2 points to 18 percent. The average percent of owners citing inflation as problem # 1 since the monthly surveys were started in 1986 is 3 percent. Plans to raise prices fell 8 points to a net seasonally adjusted 30 percent.

The net percent of owners reporting earnings gains improved modestly in August. Seasonally adjusted, those reporting declining earnings trends outnumbered those with gains by 30 percentage points, a 7 point gain. 

A year has passed since the Federal Reserve declared the existence of a "credit crunch," but no evidence of serious credit problems has appeared on Main Street. Regular borrowing activity was reported by 34 percent of the owners, unchanged and typical of readings for the past 15 years.

At street level, inflation appears much worse and is a major source of angst for consumers and all in all, it is looking like a pretty slow second half of the year, concludes the report. Since 1983, the average percent of owners citing inflation as a top problem has averaged 3 percent, compared to the 20 percent readings in June and July. August's 18 percent reading was not much of an improvement and the tie with "poor sales" as the top business problem fits the "stagflation" picture.

Please visit the NFIB here for more information including a PDF file containing charts, graphs and trends.


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