12/13/2005
CONTACT: Melissa Sharp, (202) 554-9000
| Optimism Components | Net % | Change |
| Plan to increase employment | 13 | -4 |
| Plan to increase capital outlays | 34 | +5 |
| Plan to increase inventories | 8 | +2 |
| Expect economy to improve | 11 | -3 |
| Expect higher real sales | 23 | -15 |
| Current inventory satisfaction | -1 | +1 |
| Current job openings | 24 | +3 |
| Expected credit conditions | -8 | -3 |
| Now a good time to expand | 20 | -2 |
| Earnings trends | -16 | -12 |
WASHINGTON, D.C.—It might be the season to be jolly, but those aren’t jingle bells filling the air over American small businesses, they’re alarm signals warning of inflation. Firms raising average selling prices in November soared four points to 26 percent, the second-highest reading of the NFIB Small Business Economic Trends report since the monthly survey began nearly two decades ago. The number of those planning to raise prices increased 10 points to one-third of all firms.
Not surprisingly, spirits among owners cooled a bit from the exuberant October level, lowering the survey's Optimism Index to 101.2 from an October level that was one of the highest quarterly measures ever taken.
Double-digit declines also appeared in two of the 10 index components. The ranks of owners expecting higher real sales thinned 15 points and those with positive earnings dropped 12 points. Job-creation plans slipped too—down four points—but some segments got a boost. Increases were noted among those who plan to make capital outlays, and those looking to add to their inventories.
But NFIB Chief Economist William Dunkelberg said these might not be bad signs after all if they are indications that the economy is slowing from an unsustainable third-quarter pace, a trend that—if it continued—could cause concern at the Federal Reserve.
Although job-creation plans were lower, the decline came after three months of near-record readings that more than offset hurricane-associated losses. Fifteen percent of owners said they increased employment in November, while 11 percent reported workforce reductions. Overall, small businesses added a net 0.15 employees per firm, seasonally adjusted. Workers are getting harder to find: 12 percent of those surveyed said the availability of qualified workers was their primary business problem.
The share of small-business owners planning to make capital expenditures in the fourth quarter rose 5 points to 34 percent. Twenty percent believe now is a good time to expand facilities, down 2 points from October. Although strong at this stage of the expansion, those expecting conditions to improve over the next six months declined 3 points to a net 11 percent, while a net 23 percent expect higher real sales over the next six months, fewer than October’s reading, but solid.
The frequency of reported capital outlays over the past 6 months rose to 64 percent of all firms, up 3 points. Forty-five percent bought equipment, 27 percent acquired vehicles and 16 percent improved or expanded their facilities. Seven percent added new buildings or land for expansion and 15 percent spent for new fixtures and furniture. Median outlays were about $32,000, substantially higher than recent readings.
Among the bright spots, “plans to add to inventories” hit its strongest reading of the year, rising 2 points to 8 percent. More firms reported inventory gains than declines. Seasonally adjusted, only a net 1 percent increased inventories and a net-negative 1 percent reported inventories too low (the latter a very lean posture).
The net number of small businesses reporting increased quarter-to-quarter sales volumes dipped 10 points to a net 4 percent, still solid but down from October’s yearly-high level. This has been a good year for sales gains. Seasonally unadjusted, 29 percent of all owners reported higher sales.
November profits melted, too. The decline in the number of those reporting sales gains was partly responsible, but with one-third raising average selling prices, profits should be stronger, Dunkelberg said. Those reporting higher earnings slid 7 points to 20 percent, with nearly half citing stronger sales—down 20 points—and 8 percent crediting higher selling prices. Four percent put the burden on lower materials costs.
More than one-third reported earnings lower than the previous quarter: 29 percent cited weaker sales; 21 percent blamed rising materials costs, 9 percent each named insurance costs and reductions in selling prices, and 3 percent each pointed to increasing labor rates, taxes and regulations.
Regular borrowing was reported by 38 percent, up 4 points from October. The share reporting loans “harder to get” remained at decade-low levels. Only 3 percent of the owners cited the cost and availability of credit as their main business problem. Dunkelberg noted that expectations of easier credit were also basically unchanged, so the Fed’s tightening has not yet significantly altered owner expectations about the friendliness of their banks.
NFIB’s Small Business Economic Trends is a monthly survey of small-business owners’ plans and opinions. Decisionmakers 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.
