NFIB

Small Firms Continue to Be Optimistic
03/ 22/ 2002

By Bill Dunkelberg

The economy is not in a recession, not likely to be in a recession this year and might even take a weak swing at resuming 3 percent real growth in the near future, according to small business owners.

The caution in the "forecast" is that two of the components of the most recent NFIB survey, capital spending and hiring, that are most crucial to GDP growth are at low readings compared to recent history. Hiring plans have not been this weak since1994 and capital spending plans haven't been this low for a year.


The percentage of owners reporting that now is a good time to expand their business rose 4 points to 14 percent of all firms (28 percent was the record high, reached in December, 1999; the recent low was 7 percent reached in 1990). The net percent of firms expecting the economy to improve over the next six months rose to 18 percent, a 34 point improvement from December 2000, with a negative 16 percent reading!


Productivity (output per hour) is weakening, but labor costs remain high and rising. A total of 32 percent reported raising worker compensation, just 2 points below the record level reached a few months ago; 17 percent still report a shortage of qualified labor as their top business problem and 26 percent report at least one "hard to fill" job opening.

Overall, the outlook is balanced—there are no major dislocations in the economy that will bring on the precipitous "V"-shaped recession. What is more likely is that we will have sub-potential growth which will keep the economy moving accompanied by an increase in the number of unemployed and growing excess capacity in parts of the economy. This sub-par growth could last for some time, but that's better news than the alternative—a recession.

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 July/August 2001 issue of MyBusiness Magazine, NFIB's member magazine.

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