06/16/2003
Small-business optimism inched forward in May, holding on to gains made in April. The NFIB Research Foundation's Index of Small-Business Optimism rose a tenth of a point to 100.1 in May. This is the highest reading since last November, when the Index stood at 100.9. "May's survey was a mixed bag that came out slightly in a positive direction," said NFIB Chief Economist William Dunkelberg, the author of the survey.
"None of the components moved strongly in either direction, but small business appears to be in better shape than it was earlier in the spring," he continued.
A few more small-business owners said they expected to see better business conditions in a few months. That figure rose three points to a net 39 percent of firms, and a seasonally-adjusted 11 percent believe that this is a good time to expand.
The cost and availability of insurance continues its run at the top of the list of problems facing small business. Twenty-three percent of small-business owners reported that this was their No. 1 problem. Taxes garnered 20 percent of the vote, and poor sales came in third with 19 percent.
Sales slid a bit in May, and earnings slid a bit along with them. A seasonally-adjusted net -9 percent reported higher sales, a one-point decline from April. Reports of earnings improvements slid two points.
One indicator that may help earnings improve is that prices finally rose after four months of declines. The net portion of firms reporting that they raised selling prices went from zero to 3 percent. Most of this increase was concentrated in the service sector, particularly insurance and financial services. Plans for future price increases remained unchanged at a net 15 percent of firms.
Small business continued to reduce its employment rolls in May, this time losing an average 0.18 employees per firm. This is the 26th month in the last 28 in which firms have shed jobs. There were fewer businesses reporting hard-to-fill job openings, indicating that unemployment will stay at or a bit above 6 percent, but still not a recession reading.
| Optimism Components | Net % | Change |
| Plan to Increase Employment | 8 | 0 |
| Plan to Increase Cap. Outlays | 28 | -2 |
| Plan to Increase Inventories | 6 | +3 |
| Expect Economy to Improve | 39 | +3 |
| Expect Higher Real Sales | 11 | -1 |
| Current Inventory Satisfaction | 0 | +3 |
| Current Job Openings | 1 | -1 |
| Expected Credit Conditions | 11 | 0 |
| Now a Good Time to Expand | 11 | +4 |
| Earnings Trends | -24 | -2 |
Credit markets remain friendly to small businesses, with a net 3 percent reporting more difficult borrowing conditions, unchanged from April. Only 2 percent of firms cited credit as their top problem, but there seems to be little demand for credit since small businesses see no incentive to borrow for expansion. Those that did borrow reported an average interest rate of 6.1 percent, unchanged from April.
Small businesses drew down their inventory for the 26th straight month in May, with -9 percent reporting that they increased their stocks. This was a four-point deterioration over April. While actual inventories continue to remain in negative territory, plans for future inventory expansion did pick up three points to a net 6 percent of firms, a strong showing.
Capital spending plans were down a bit, although more businesses did report actual capital spending in the past few months. Twenty-eight percent of firms reported planning to increase capital spending, a two-point decline. The actual outlays rose to 60 percent, up two points.
"Small business continues its slow growth," said Dunkelberg. "There is a lot of stimulus in the economy now - tax cuts and low interest rates. This stimulus hasn't done much yet, with firms still working off excess capacity left over from the late 1990s. Once the excess is worked off, profits should be exceptionally healthy and economic growth will pick up."
NFIB's Small Business Economic Trends is a monthly survey of small-business owners' plans and opinions. Decision-makers at the federal, state and local levels actively monitor these reports, ensuring that the voice of small business is heard. The NFIB Research Foundation conducts some of the most comprehensive research of small-business issues in the nation. The National Federation of Independent Business (NFIB) is the nation's largest small-business advocacy group. A nonprofit, nonpartisan organization founded in 1943, NFIB represents the consensus views of its 600,000 members in Washington and all 50 state capitals.
CONTACT: Michelle Dimarob, (202) 554-9000
