NFIB

Steady Economic Growth
11/ 25/ 2002

by Bill Dunkelberg

Well, it's an interesting economy to say the least. Businesses aren't spending but consumers are buying houses like they're going out of style, and consumer spending in general is quite solid. Exports are rising since the dollar is weakening, making our products more attractive to the rest of the world. But, import spending also rose since import prices are up, so even the same real volume of imports costs more now.

The net of all of this is only modest and sporadic growth for the whole economy. But the trend is pretty clear: It's up, not down to a double dip. But the progress is slow. Meantime, low inflation and interest rates lubricate the sluggish economy, making it possible for it to inch forward. Growth will be slow for a while, but profits are now rising and new spending will soon give the economy a little more gas.

Consumer sentiment slipped in August, but spending didn't--it was up. Small business is helping out. Twenty percent of the owners reported raising worker pay. Although well below the 32 percent reading in 2000, it's above the 12 percent reading reached during the recession in the early 1990s. With very low inflation, this represents real income gains that continue to support solid consumer spending. However, low inflation means firms aren't raising prices, and thus can't pass on rising labor costs. This is bad news for profits for large and small firms.

Still, the Small Business Optimism Index recorded a 2 point gain overall in August, rising to 101.5 . No double dip in these numbers. This portends GDP growth in the 2 percent to 3 percent range in the second half of the year. Hiring plans increased 4 points and plans to add to inventories, which is good for manufacturing, was up 4 points as well.

Capital markets remain very friendly. The percent of owners reporting that their last loan was "harder to get" was 3 percent, compared to 37 percent in 1982!

So, overall, the small business sector of the economy looks OK, and that's half of the GDP. The net government impact is strongly positive and monetary policy remains stimulative and exports will rise as the dollar weakens. This is a lot of stimulus going forward, enough to keep us growing.

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 October/November 2002 issue of MyBusiness magazine.

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