NFIB

Recession Fears Fuel Pessimism
03/ 29/ 2002

by Bill Dunkelberg

The Small Business Optimism Index lost ground in recent months (as has consumer optimism), but a lot of the erosion has been in “expectations,” not in actual spending or spending plans.

Reports of hard-to-fill job openings continue to run at record levels. Reported capital outlays also remain at record levels. Reports of price hikes continue to decline in frequency. Reports of higher average selling prices peaked in June at 19 percent of all firms, but now are in single digits. This is good news indeed. And, nobody is going to complain about lower interest rates--as long as the banks are willing to keep lending in the face of a weakening economy.

Thus, the only “recession” so far is in expectations (well, there was weakness in retail sales reports in December, with a 9-point decline in the percent of firms reporting higher sales volumes). The percent of firms reporting the current period as a “good time to expand” has slipped from 28 percent a year ago. The percent of firms expecting the economy to be weaker by mid-year exceeds the percent expecting the economy to grow by 16 percentage points (but that occurred several times in the past 12 months). Plans to add inventory have plummeted, which is likely a reaction to a weaker-than-expected holiday season that left retailers overstocked. Also, the percent of firms expecting higher real sales volumes over the next three to six months has dropped 9 points since mid-2000. The key to the level of strength in the economy will be the rate at which these weaker expectations are translated into weaker spending. As things stand now, “slowing,” not “falling” is the most likely scenario for the economy.

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 March/April 2001 issue of MyBusiness Magazine, NFIB's member magazine.

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