11/08/2005
CONTACT: Melissa Sharp, (202) 554-9000
| Optimism Components | Net % | Change |
| Plan to increase employment | 17 | 0 |
| Plan to increase capital outlays | 29 | -2 |
| Plan to increase inventories | 6 | +2 |
| Expect economy to improve | 14 | +11 |
| Expect higher real sales | 38 | +21 |
| Current inventory satisfaction | -2 | -3 |
| Current job openings | 21 | -2 |
| Expected credit conditions | -5 | +1 |
| Now a good time to expand | 22 | +3 |
| Earnings trends | -4 | 10 |
WASHINGTON, D.C. – Get ready for a strong fourth quarter, say American small-business owners, whose upbeat views of the days ahead triggered a nearly-four-point jump in the October NFIB Small-Business Optimism Index to 103.7 and confirmed previous findings that recent hurricanes had little effect on the nation’s overall economy.
Six of 10 index components rose during the month. Leaping 21 points to 38 percent was the net percent expecting higher real sales. Up 11 points to a net 14 percent were owners forecasting a better economy ahead. Reports of favorable earnings trends increased 10 percentage points. Upswings were also found among those predicting that now is a good time to expand, owners planning to increase inventories and those who expect less difficulty obtaining credit.
“The job creation outlook is very good and the fourth quarter should produce solid employment gains,” said NFIB Chief Economist William Dunkelberg. More firms plan to create new jobs than at any time since the dot-com boom. Except for agriculture and retail trades, hiring plans were solid in all industries with financial services and construction topping the list, followed by professional service firms. Regionally, South Atlantic states were the strongest.
Nearly one-fifth of those surveyed reported adding employees in October, compared with 8 percent who trimmed their rolls. Fifty-two percent hired or tried to hire one or more employees, but eight of 10 of those owners were unable to find qualified workers. The average reported increase in employment per firm was .46, a survey record.
Even with the dual impact of weather and energy problems, small-business owners continued to spend over the past six months. Capital outlays, although down six points, were reported by nearly two-thirds. Almost half purchased new equipment, 24 percent bought vehicles and 13 percent improved facilities. Sixteen percent added new fixtures and furniture while 8 percent acquired new buildings or land for expansion.
The share of those who plan to make capital expenditures in the fourth quarter fell two points to 29 percent of all firms, still a strong number. Climbing three points to 22 percent was the segment of owners who said now is a good time to expand facilities. Spending plans were most frequent in manufacturing (44 percent).
Seasonally adjusted, a net-negative 2 percent reported inventories too low, a historically lean posture. Manufacturers’ positions were balanced among those reporting inventories “too high” versus “too low.” Inventory investment plans should maintain this balance: 17 percent plan to add, 17 percent foresee cutbacks. Similarly, construction firms were nearly balanced—4 percent too high, 5 percent too low. But wholesalers had a different view: 15 percent expect to add to their holdings, while 35 percent plan reductions into the holidays.
Reports of rising sales volumes, quarter-over-quarter, surged strongly, up nine points to a net 14 percent of all firms. Manufacturing is still on solid ground, as evidenced by a 12-point hike to 47 percent among firms that had sales gains; 40 percent of those in construction and retailing also reported increases.
Inflation remains high, but it isn’t accelerating. Firms reporting higher selling prices dropped three points to 29 percent, but those noting reductions rose two points. Seasonally adjusted, a net 22 percent claimed higher selling prices, down three points. Firms in all industries are raising prices, led by construction where 38 percent reported higher-average selling prices and wholesale trades where 41 percent boosted their average tickets.
Earnings-gains reports, driven by strong sales, leapt a strong 10 points in October. The number of those reporting higher earnings rose five points to 27 percent and more than two-thirds of them attributed their increases to stronger sales. Eight percent cited higher selling prices.
Of the 30 percent who claimed lower earnings compared to the previous quarter, 37 percent blamed weaker sales and 13 percent cited materials costs. One-tenth each attributed the drop to higher insurance costs or selling prices, 7 percent said higher taxes and regulatory measures hurt them and 3 percent mentioned higher labor costs.
The overall balance between higher compensation costs (a net 26 percent) and higher average selling prices (a net 22 percent) diverged, becoming more detrimental to profits. But strong sales made up for the firms’ inability to pass on rising labor costs.
Regular borrowing slid two points to 34 percent of owners in October. The net share of those reporting more difficulty in getting loans remained historically low at a net 4 percent, close to levels attained for more than a decade. The reported cost of short-term money was 8.1 percent.
Only 3 percent said the cost and availability of credit was their key concern. Thirty-four percent reported having all their credit needs met compared to 5 percent who had problems obtaining financing. The net share reporting higher rates on recent loans has declined from a recent peak of 27 percent in May to 20 percent in October, a sign that rate hikes might be slowing.
Those expecting credit conditions to ease was a net-negative 5 percent, little changed from earlier in the year in spite of the Federal Reserve’s tightening of interest rates.
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 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, D.C., and all 50 state capitals.
