NFIB

Jobless Recovery Continues; No "Double Dip" Recession Seen

The economic outlook of America's small-business owners slipped in July but still translates into continued, albeit slow, economic growth over the next six months, according to NFIB's Small Business Economic Trends (SBET). The Index of Small Business Optimism fell 2.6 points to 99.5 in July (1986 = 100).

"The 'jobless recovery' remains in place, with modest employment gains reported and weak hiring plans going forward,'" said NFIB Chief Economist William Dunkelberg. "This translates into slow growth over the next six months; nothing exciting."

The net percent of owners expecting the economy to be better in six months fell to 30 percent of all firms -- down from 33 percent in June and 38 percent in May. Unadjusted, 36 percent expect the economy to get stronger over the next six months -- down 5 points -- and 11 percent expect it to weaken, up two points. Still, nine out of 10 business owners expect the economy to remain steady or grow during the second half of 2002 -- a strong showing, though not as "exuberant" as earlier this year, Dunkelberg said.

The cost and availability of insurance continued its strong showing in recent months as the second-most important business problem, garnering 18 percent of the votes, just 2 points shy of 1st place winner taxes, which received 20 percent. The 3rd place finish went to poor sales with 15 percent of the vote, up a point from last month.

SALES: Sales trends turned ugly in July, reversing the first positive number recorded in the past 14 months in the June survey. The net percent of employers reporting higher sales quarter over quarter (seasonally adjusted) was -11 percent, a 13-point deterioration. Reports of price hikes diminished and the profit picture went south.

EARNINGS: Weak sales and a lower incidence of price hikes hit the bottom line, reducing the percent of firms reporting higher earnings by 8 points. Twenty percent reported higher earnings, but 40 percent reported weaker earnings, up 3 points. Small business has seen worse, but the current trend is not an encouraging one for small-business owners.

PRICES: The net percent of businesses reporting higher average selling prices fell to 3 percent of all firms. The 12-month average percent of firms raising prices (net of those cutting prices) has hit an all-time 12-month average low of .83 percent of all firms. Since last September, the net percent of firms reporting higher average selling prices has produced a feeble sequence of figures: 4 percent, 2 percent, -4 percent, -7 percent, -5 percent, -5 percent, 1 percent, 2 percent, 2 percent, and 6 percent in June. But, it's good news for inflation fighters. Unadjusted, 17 percent reported increases in average selling prices in the past three months - down one point - and 15 percent reported reductions in average selling prices, up two points.

EMPLOYMENT AND COMPENSATION: Although there were sporadic signs of "labor shedding" in the second half of 2000, the reduction in "labor inventory" got serious starting in March 2001. The beginning of a succession of labor force reductions produced 15 negative figures in the ensuing 17-month period, including this July. This is the "jobless recovery" that SBET anticipated last year - not the V or the W or the U, but the saucer.

CREDIT CONDITIONS: The average interest rate paid on short-term loans fell 10 basis points to 6.9 percent (interest rates paid were not recorded until 1980). The percent of firms citing credit issues as their No. 1 business problem rose to 4 percent of all firms, but this is a very low figure. Virtually all borrowers reported no difficulty satisfying their borrowing needs.

INVENTORIES: The inventory sell-off hasn't ended. The net percent of firms reporting inventory accumulation fell from -2 percent to -7 percent in July, (seasonally adjusted), making July the 16th consecutive month in which more firms reported inventory reductions than reported gains. There were 41 consecutive months of reduction in the early 1990s.

CAPITAL OUTLAYS: Capital-spending plans fell 1 point to 28 percent of all firms. For perspective, the average for 1992 was 29 percent, 32 percent for 1993, 34 percent for 1994, 38 percent for 1995, 37 percent for 1996, 38 percent in 1997, 36 percent in 1998 and 1999, 34 percent in 2000, and 31 percent in 2001. In the current environment, following five years of heavy capacity expansion, owners are less than anxious to move ahead with new capital expansion. And, profits, an important driver of capital spending, are still weak.

"Although the Index anticipates growth in the third quarter, the reversal in the numbers was a disappointment," Dunkelberg said. "Much of the Index decline was due to a large drop in expected business conditions. Last year, the Index broke 100 only twice, showing weakness all year. So, this month's figure is not bad. Profits are still down. The incidence of reported compensation gains is falling steadily, but slowly. Eventually, a combination of productivity gains, price hikes and reductions in compensation gains will begin to restore profits."

CONTACT: Michelle Dimarob, (202) 554-9000