Annapolis, January 14,
2014 – Small-business
optimism ended the year slightly up from November at 93.9, but below the
previous 3 mid-year readings of over 94 and 6 points below the pre-recession
average, according to the National Federation of Independent Business’ (NFIB’s)
latest index. On the positive front, reports of capital spending rose
significantly in December, increasing by 9 points from November and job
creation among NFIB firms was the best since February 2006. Hopefully, the
promising NFIB job creation and capital spending numbers for December forecast
a better 2014.
“The problem for Maryland
is that it really needs a rising national economy to lift it up and we’re just
not seeing that,” said NFIB Maryland
State Director Jessica Cooper. “Annapolis
could do more with some real pro-growth initiatives like tax reform and
regulatory reform, but small business owners don’t see that in the cards so
they’re remaining very cautious.”
NFIB Chief Economist Bill Dunkelberg said the lackluster survey of small business
owners is most likely influenced by lackluster consumer confidence.
“While there has been no
sign that a real recovery has begun, we can be encouraged that the economy is
at least crawling forward and not heading in reverse,” said Dunkelberg.
“Some segments of the economy are showing improvement (manufacturing,
construction, professional services), but consumer spending, especially on
services (70 percent of consumption), has lagged. Spending on items such as
automobiles has certainly increased, however a corresponding rise in hiring has
not yet materialized.
“Two monthly advances could be the start
of a more positive trend, but there are many threats to improvement, including
the majority of respondents feeling the current climate is not “a good time to
expand substantially” blaming the political climate, something that may not
improve in an election year. Obamacare will continue to generate issues for
small business owners as well as individual consumers. And the national debt continues
to rise with another fight to increase the debt ceiling looming once again. The
uncertainty that has contributed to our slow recovery is clearly still present
– making any advances shaky at best.”
A review of the December
indicators is as follows:
• Labor Markets. Owners increased employment by an average of 0.24
workers in December, the best reading since February 2006. Fourteen percent of
the owners reported adding an average of 3.4 workers per firm over the past few
months. Offsetting that, 10 percent reduced employment an average of 1.8
workers, producing the seasonally adjusted net gain of 0.24 workers per firm
overall. The “difference” between these
two measures is new job creation.
Overall, it appears that
owners hired more workers on balance in December than their hiring plans
indicated in November, a favorable development.
Job openings maintained its solid reading and job creation plans, though
slipping a point, held on to the improved levels observed in recent months,
anticipating a better job creation figure than reported in November and no
deterioration in the unemployment rate.
Spending. The frequency of reported capital outlays over the past 6
months surprisingly gained 9 percentage points in December, a remarkable
increase. Sixty-four percent reported outlays, the highest level since early
2005. The surge in spending, especially on equipment and fixtures and
furniture, is certainly welcome and is hopefully not just an end-of-year event
for tax or other purposes. This level of spending is more typical of a growing
Sales. The net percent of all
owners reporting higher nominal sales in the past 3 months compared to the
prior 3 months was unchanged at a negative 8 percent. Fourteen percent still
cite weak sales as their top business problem, but the lowest since June 2008.
The net percent of
owners expecting higher real sales volumes rose a solid 5 points to 8 percent
of all owners, restoring the September level of positive expectations. Not
seasonally adjusted, 26 percent expect improvement over the next 3 months and
36 percent expect declines. Although restoring the highest reading since early
2012, the gain still leaves sales expectations in a relatively soft position.
The net percent of owners raising selling prices was a negative 1
percent, down 3 points. There is no evidence that firms are able to raise
prices, even though they may wish to as many firms are raising compensation,
but not passing those costs on to customers.
Twenty-five percent plan
on raising average prices in the next few months, and 3 percent plan reductions.
Clearly, reality is preventing firms from implementing the price hikes they
would like to have. A net 19 percent plan price hikes, a long way from the net
negative 1 percent reporting higher actual prices in recent months.
Earnings and Wages. Earnings trends
improved a bit in December, rising 2 points to a net negative 22 percent. Not
seasonally adjusted, 16 percent reported profits higher quarter to quarter, and
37 percent reported profits falling. If these were publically traded companies,
the stock market indicators would not look good. The economy remains
bifurcated, large firms doing fairly well, small businesses showing little
growth or improvement.
Markets. Four percent of the
owners reported that all their credit needs were not met, unchanged and an
historic low. Thirty-two percent
reported all credit needs met, and a record high 55 percent explicitly said
they did not want a loan. Only
2 percent reported that financing was their top business problem compared to 23
percent citing taxes, 20 percent citing regulations and red tape and 14 percent
citing weak sales.
Today’s report is based
on the responses of 635 randomly sampled small businesses in NFIB’s membership,
surveyed throughout the month of December. Download the complete study at http://www.nfib.com/sbetindex.
*All net percentages
seasonally adjusted unless otherwise noted. The net percentage is the percent
with a favorable response less the percent of owners with an unfavorable