NFIB

Recovery Continues
07/ 11/ 2002

by Bill Dunkelberg

Economic growth surged in the first quarter--as predicted by NFIB members in the fourth quarter 2001 surveys, when the net percent of firms expecting the economy to be--better--in six months started rising sharply, from 24 percent in October to 48 percent in March. The April reading of 37 percent still affirms continued growth.

In the first quarter, the Gross Domestic Product grew 5.8 percent, and half of that growth was accounted for by inventory reductions not being as high as in the fourth quarter of 2001.

Reports of sales declines were virtually balanced by reports of sales gains, with the best reading since August of last year, when it looked like the economy was taking off again before the terrorist attack. The percent of small firms reporting declines in sales exceeded the percent reporting gains by 1. In February, the reading was -19 percent, so things have improved!

Hiring plans and plans to increase inventories each gained two points in April, while capital spending plans dropped two points from March, which was the best reading since February, 2001 (the month before the "recession" officially started).

A net 2 percent of all firms reported raising average selling prices. This is good from the Fed's perspective--hardly a whiff of inflation--but not so good for firms trying to repair battered earnings and margins. While only 2 percent of small companies were able to increase selling prices, 21 percent reported increasing labor compensation.

It appears that during the expansion of the 1990s, over 90 percent of the gains in productivity were captured by labor, putting a crimp in profit growth. These stats confirm that labor is still doing well in today's markets.

Expect growth in the second quarter to be more subdued. But with low inflation and interest rates, high employment rates and solid consumer spending, the economy should continue to grow at a respectable pace.

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 June/July 2002 issue of MyBusiness magazine.

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