Small Business Economic Trends - October 2013

Author: Mark Alves Date: October 08, 2013

Small Businesses Skeptical About Future; Optimism Dips

Small business optimism componentsWhile small business owner optimism did not "crash" in September, it dropped 0.2 points to 93.9 from August's (corrected) reading of 94.1. The largest contributing factor to the dip was the significant increase in pessimism about future business conditions, although this was somewhat offset by a notable increase in number of small business owners expecting higher sales. Overall, four Index components improved, four fell and two remained unchanged from August. While it is premature to measure the impact of the government shutdown on the small business sector, it's possible that the pending "crisis" impacted economic outlook. October's reading will reveal the full effect of Washington's latest crisis on the small business sector, which has remained cautious throughout the recovery.

The change in this month's Index was little more than 'statistical noise,' but the drop in outlook for future economic conditions is evidence that many owners are keeping an eye on Washington. Prospects for politicians and policymakers 'getting it right' are low, and job creators are rolling their eyes and shaking their heads thinking, 'This is certainly not the way to run the largest enterprise in the world.' Between botched healthcare implementation and one manufactured crisis after another, consumers and small business owners are likely to remain pessimistic, accepting the notion that growth is going to be sub-par and that their government is likely to continue in dysfunctional mode for months to come. – NFIB chief economist Bill Dunkelberg

Download the Report   Read the Press Release

Small business optimism report data through September 2013

NFIB Economist Bill Dunkelberg
Explains This Month's Drop in Confidence



This survey was conducted in September 2013. A sample of 3,938 small business owners/members was drawn
and 773 usable responses were received for a response rate of 20%.

NFIB Research Foundation's Holly Wade
Explains This Month's Jobs Numbers

Top problems of small business owners


Optimism Index

Well, a processing error produced a few “interesting” results in the details in the August data such as a surge in job creation plans and major declines in reported sales. But with the correction, most of the 10 Index components were little changed, with the exception of expected business conditions 6 months ahead which gave up 8 points. This could have been a result of the pending government shutdown and the exaggerated political rhetoric spewed into the media, although there was no difference in responses among those received in the first 20 days and the last 10 days of the month.

Labor Markets

Small business employment data

Fifty-one percent of the owners hired or tried to hire in the last three months and 41% (80% of those trying to hire or hiring) reported few or no qualified applicants for open positions. Reports of workforce reductions have reached normal or sub-normal levels, explaining the favorable levels of initial claims for unemployment. Eleven percent reported reducing employment, the third lowest reading since October, 2007.  The other two lower readings occurred this year.  But owners report sub-par levels of hiring, so job growth remains anemic even with low levels of initial claims. Twenty (20) percent of all owners reported job openings they could not fill in the current period (up 1 point), a positive signal for the unemployment rate. Fourteen (14) percent reported using temporary workers, down 2 points from August. Job creation plans lost 1 point from August, landing at 9%. Housing starts have stalled, just shy of the 900,000 unit mark (although multi-family starts are still solid and provide more jobs per start). Housing is labor intensive and more growth there will provide needed job growth

Small business job creation plans

Unfilled job openings data


Inventories & Sales

The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past 3 months compared to the prior 3 months was unchanged at a negative 6%. Seventeen percent still cite weak sales as their top business problem. The net percent of owners expecting higher real sales volumes rose 3 points to 8% of all owners (seasonally adjusted. This is good to see as it will take improved sales expectations to trigger hiring and new inventory orders.  But it is a bit inconsistent with the large deterioration in expected business conditions. The pace of inventory reduction continued, with a net negative 7% of all owners reporting growth in inventories (seasonally adjusted), 2 points worse than August.  Unadjusted, 12% reported growth in inventory stocks (up 1 point) and 18% reported inventory reductions (down up 4 points). For all firms, a net 0% (unchanged) reported stocks too low, an historically “satisfied” reading. The net percent of owners planning to add to inventory stocks was unchanged at a net negative 2% - a bit inconsistent with the expectation for sales growth.

Capital Spending

The frequency of reported capital outlays over the past 6 months rose 2 points to 55%. Of those making expenditures, 39% reported spending on new equipment (up 1 point), 20% acquired vehicles (down 1 point), and 13% improved or expanded facilities (unchanged). Five percent acquired new buildings or land for expansion (unchanged) and 12% spent money for new fixtures and furniture (up 1 point). Overall, it was a modest increase in capital spending. The percent of owners planning capital outlays in the next 3 to 6 months rose 1 point to 25%. Eight percent characterized the current period as a good time to expand facilities (up 2 points). 

Small business outlook on expansion


Fourteen (14) percent of the NFIB owners reported reducing their average selling prices in the past 3 months (down 2 points), and 14% reported price increases (down 3 points). Seasonally adjusted, the net percent of owners raising selling prices was 1%, down 1 point. Twenty (20)% plan on raising average prices in the next few months (up 1 point), and 2% plan reductions (down 1 point).  Seasonally adjusted, a net 19% plan price hikes, up 1 point.  On Main Street, there is little evidence of inflation, no surprise with such week sales and prospects.

Earnings & Wages

Earnings trends worsened a bit in September, falling 2 points to a negative 23%. At the same time, the Fortune 500 is posting record high profits. Three percent reported reduced worker compensation and 20% reported raising compensation, yielding a seasonally adjusted net 17% reporting higher worker compensation (up 2 points). A net seasonally adjusted 13% plan to raise compensation in the coming months, up 1 point. Overall, the compensation picture remained at the higher end of experience in this recovery, but historically weak for periods of economic growth and recovery, consistent with the macro reports about weak growth in income and compensation. With a net 17% raising compensation but only a net 1% raising selling prices, profits will continue to be under pressure.

Credit Markets

Six percent of the owners reported that all their credit needs were not met, up 1 point from August. Twenty-eight (28) percent reported all credit needs met, and 53% explicitly said they did not want a loan. Only 2% reported that financing was their top business problem compared to 18% citing taxes, 24% regulations and red tape and 17% citing weak sales. Thirty (30) percent of all owners reported borrowing on a regular basis, up 2 points and historically very low.  A net 5% reported loans “harder to get” compared to their last attempt (asked of regular borrowers only), up 1 point from August. The average rate paid on short maturity loans was 5.8%, about where it has been stuck for years. The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted negative 7%, 1 point better than August but a favorable reading in this recovery.


Bill Dunkelberg

The Optimism Index was basically unchanged, giving up two-tenths of a point, statistical noise. The only interesting change in the components was an 8 point deterioration in expectations for business conditions over the next six months.  And why not, prospects for Washington “getting it right” are low. The Federal Reserve will persist, even though there is little evidence that they are improving employment. This creates heightened concerns for how their portfolio will be “managed”. The Federal Reserve is buying the equivalent of the Treasury issuance of debt to finance the deficit, not a promising situation. There isn’t much evidence that buying a trillion dollars-of bonds is improving employment. However, one can always argue the counter-factual, that without QE, employment growth would have been even worse. Certainly the rich would be poorer and big banks would have made less. But that’s not what monetary policy should be about.  Fiscal policy? What a mess. No budget for years, sequester is now built-in…this is certainly not the way to run the largest enterprise in the world.

Consumers and small business owners are pessimistic, not expecting a “crash” in the economy, just accepting the notion that growth is going to be sub-par and that their government is likely to continue in dysfunctional mode. The misstatements and exaggerations and distortions being sold to the public are stunning, but after all, these are politicians. A desperation deal will likely evolve, and it will be poorly constructed and conceived as usual. This is a “game of thrones” indeed, and no one is really concerned about the peasants, the politicians just want to make their points.

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