Contact: Melissa Sharp 202-314-2068
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WASHINGTON, September 8, 2009 – The National Federation of Independent Business monthly Small Business Economic Trends survey reports small business owner optimism rose 2.1 points to 88.6. Seven of the 10 Index components posted gains or were unchanged, three components declined. The gain was primarily a result of improved expectations for future business conditions and expected real sales volumes. “The gain in the Index clearly signals that the worst is likely over, but so far there has been no ‘surge’ in sentiment as many components still remain at historically low levels,” said William Dunkelberg, NFIB’s chief economist.
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Optimism Components
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Net %
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Change
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PLAN TO INCREASE EMPLOYMENT
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0
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3
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PLAN TO INCREASE CAP. OUTLAYS*
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16
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-2
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PLAN TO INCREASE INVENTORIES
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-7
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-2
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EXPECT ECONOMY TO IMPROVE
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10
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13
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EXPECT HIGHER REAL SALES
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-5
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6
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CURRENT INVENTORY SATISFACTION
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-4
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0
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CURRENT JOB OPENINGS*
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8
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-1
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EXPECTED CREDIT CONDITIONS
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-13
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1
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NOW A GOOD TIME TO EXPAND*
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5
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0
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EARNINGS TRENDS
*Note: These components are measured as actual percentages of all respondents and are not net percentages. A net percentage is the percent positive minus percent negative.
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-40
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5
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“The small business sector has taken a real beating over the last year,” said Dunkelberg, “but owners are seeing some upward movement in both sales and earnings.” Also, more owners expect real sales volumes and business conditions to improve in the coming months.
Owners have reduced employment and cut inventories at a record pace, and capital spending (plans and actual) reached 35 year lows this year. Owners seem to have shed all but what’s necessary to keep their doors open.
“Clawing their way back requires some cooperation from consumers, the source of sales for most small firms, and consumers are not yet in a spending mood,” said Dunkelberg. Real sales volumes and business conditions are expected to improve in coming months. “Let’s hope that owners follow up with an increase in spending and hiring,” said Dunkelberg.
Employment:
The “job generating machine” is still in reverse. Eight percent (seasonally adjusted) reported unfilled job openings, down 1 point from July. Over the next three months, 13 percent plan to reduce employment (down 1 point), and 7 percent plan to create new jobs (down 1 point), yielding a seasonally adjusted net 0 percent of owners planning to create new jobs, a 3 point improvement over July.
Wage pressures are falling as owners not only reduce employment but also the compensation of their remaining workers. Reports of compensation cuts and increases remained in record territory, with 10 percent reporting reduced worker compensation, and 12 percent reporting increased worker compensation. Seasonally adjusted, a net 6 percent reported raising worker compensation, unchanged from July and only 3 points above June’s record low reading.
Sales and Profits:
Reports of positive profit trends improved 5 points to a net negative 40 percentage points. “Although profit trends improved, the fact that these negative reports persist is bad news for the small business community,” said Dunkelberg. Not seasonally adjusted, 16 percent reported profits higher (up 3 points), but 50 percent reported profits falling (down 2 points). Of those owners reporting lower earnings compared to the previous three months, 62 percent cited weaker sales.
The net percent of all owners (seasonally adjusted) reporting higher sales in the past three months remained negative at minus 27 percent, but 7 points better than the record low set in March and revisited in July. Expectations for gains in real sales rebounded, gaining 6 points from the July reading to a net negative 5 percent expecting improvements. Although still negative, this latest rebound in expectations is 26 points better than the March record low level.
Capital Spending:
Plans to make capital expenditures over the next few monthsfell 2 points to 16 percent, revisiting the survey record low reached in 1975 and in March of this year. Five percent characterized the current period as a good time to expand facilities, unchanged from July and historically very low. But, a net 10 percent expect business conditions to improve over the next six months, up 13 points from July. The frequency of reported capital outlays over the past six monthsfell 1 point to 45 percent of all firms, a record low reading (data first collected in 1979).
Credit Markets:
Overall, loan demand is down due to widespread postponement of investment in inventories and historically low plans for capital spending. Thirty-two percent reported regular borrowing, down 1 point from July. Of those borrowers, 30 percent reported all their borrowing needs met (up 2 points) compared to 7 percent who reported problems obtaining desired financing (down 3 points). The recession is now 21 months old, much longer than any other time since the 1980-82 period, so more “stress” is likely as owners wait for customers to show up and for their cash flow to improve.
The net percent of owners reporting loans harder to get fell 1 point to 14 percent of all firms. But only 4 percent of the owners reported “financing” as their number one business problem. Pre-1983, as many as 37 percent cited financing and interest rates as their top problem.
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