NFIB

Slow (But Steady) Growth
01/ 27/ 2003

by Bill Dunkelberg

So far, 2002 is turning out to be an OK year. Growth in real Gross Domestic Product (GDP) will average 3 percent for the 12 months since Sept. 11. That’s just below the trend growth rate of 3.5 percent. Employment has reached 63 percent of the population (over the age of 16), one of the best employment years in history. Inflation is still very low, and interest rates are the lowest in 40 years.

All in all, not a bad economy. It just seems boring in comparison to the 1995-2000 period when growth averaged above 4 percent per year and the stock markets went crazy. The sources of growth present a less comforting picture however. The consumer continues to buy cars and houses--that’s good. But how long can it last? Government spending is accounting for an uncomfortable share of the growth, while private investment is showing few signs of life.

The small business sector of the economy, which accounts for more than 50 percent of the GDP, is showing signs of life, but presenting a mixed picture of growth as well. Capital spending plans rose to 30 percent of all firms--not exactly a strong number. Actual capital spending has been a little weak, but it hasn’t faded like the capital expenditures of larger firms.

Hiring has not been strong either. Firms unloaded their inventories of goods and materials, yet retained their good workers. As the economy grew slowly, firms were able to handle the increased output needed to meet demand with the same workers. This has produced great productivity numbers (output per hour has grown), but has prevented the formation of a lot of new jobs. Thus, payroll employment numbers have hardly grown. Only 7 percent of small businesses plan to expand total employment at their firms--again, not a "hot" number.

Plans to add to inventories are, however, quite strong. After selling everything in sight, firms now need more inventory to meet expected increases in demand. A net 37 percent of business owners expect the economy to improve over the next six months and 15 percent now think it is a good time to expand their facilities. Sales and profits are improving, although by small increments.

The Index of Small Business Optimism remained stalled at about 101, consistent with solid but not exciting growth in the economy. Overall, it appears that the economy will continue to plod ahead. No double dip in the numbers, and that’s a relief.

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 December/January 2003 issue of MyBusiness magazine.

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