NFIB

Growth Slow But Sure
04/ 10/ 2003

by Bill Dunkelberg

Small business owners are more suspect of the near-term strength of the economy. The most recent reading on the NFIB Small Business Optimism Index was 96.1, the lowest reading since the sag in activity in 1993, the "jobless recovery" era that preceded the longest expansion in U.S. history.

But the real economy isn't doing as poorly as the confidence measures suggest. The University of Michigan Index in February stood at 80, well above readings during recent recessions. The latest revision on last year's GDP growth puts it near 3 percent in real terms, compared to an average of 3.5 percent over the past few decades. The real support is coming from the consumer--spending on cars and houses in particular. An equally strong surge in government spending is boosting GDP, and even business investment is showing modest life. Offsetting economic performance is a record trade deficit.

Although we haven't had a rise in concern about "politics" as a reason to delay expansion, the cloud of war is certainly dampening optimism for small businesses and consumers. Hiring plans are almost as weak as they were in post-recession time of 1993. But capital spending plans are solid, and inventory accumulation plans are still historically strong. More firms cut prices than raised them over the past three months. The exceptions are the finance, insurance and real estate industries, where more than 30 percent of owners report raising average selling prices. The percent of owners reporting declining profit trends reached a record in February--profits are not growing.

The net percent of owners expecting the economy to improve over the next six months fell to 12 percent, the lowest reading since early 2001. Just last November, a net 42 percent expected improvement by early this year. This is not new "territory." It's much like the early 1990s. But since the party was so big and lasted so long, it is likely that it will take more time to recover from the hangover. In the meantime, we will have low interest rates, low inflation and easy credit conditions to help the economy move ahead. The war uncertainties will also be resolved in the next few months, triggering a "relief rally" in financial markets and in spending. It's tedious, but we are still moving forward and that's good news.

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 February/March 2003 issue of MyBusiness magazine.

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