NFIB

A Soft Landing
03/ 29/ 2002

by Bill Dunkelberg

It's clear that 2000 will go into the books as another good year in what is now the longest economic expansion in history. Although third quarter growth was significantly slower that the first half, the pace was still historically very strong. And even though there is a slowdown, a recession is not likely. We are clearly entering 2001 with a lot of momentum, which will preclude a recession in the first half of the year.

Heavy increases in government spending will kick in throughout the year, adding strength to the economy that will offset slower consumer spending and reduced investment spending. If we grow 3 percent in 2001, this will be "much slower" than in previous years and the picture this paints for inflation, interest rates and employment still has a great frame.

Expectations also reveal a loss of confidence in the ability of the economy to grow. The net percent ("net" is the percent of firms giving a favorable response less the percent giving an unfavorable response to the question) of firms expecting the economy to be stronger six months after the survey has slipped from zero to –3 percent.

Labor markets remain exceptionally tight, one reason why job creation has been lower this year than last. The percent of firms reporting job openings that are hard to fill averaged 33 percent this year, the highest in NFIB history. All year, nearly a quarter of all firms reported that finding qualified labor was their most important business problem (only "taxes" received more votes as the No. 1 problem). Meantime, reports of rising labor compensation remain at record levels.

The inflation picture deteriorated rapidly through mid-year, then moderated a bit. But, overall, the percent of firms raising prices in 2000 was way ahead of 1999 or 1998.

NFIB's Small Business Economic Trends, begun in 1973, is the longest continuous survey of small business optimism and conditions. It is frequently quoted by Federal Reserve Chairman Alan Greenspan and national media. Monthly surveys are sent to more than 2,500 NFIB members and quarterly surveys are sent to more than 7,500 members. The few minutes members spend completing the surveys adds to NFIB's stature as the source of the nation's foremost research about small business.

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This article originally appeared in the January/February 2001 issue of MyBusiness Magazine, NFIB's member magazine.

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