08/08/2006
CONTACT: Stephanie Cathcart, (202) 554-9000
| Optimism Components | Net % | Change |
| Plan to increase employment | 15 | +6 |
| Plan to increase capital outlays* | 31 | +4 |
| Plan to increase inventories | 1 | +1 |
| Expect economy to improve | -6 | +2 |
| Expect higher real sales | 18 | +5 |
| Current inventory | -2 | -1 |
| Current job openings* | 24 | -1 |
| Expected credit conditions | -7 | +1 |
| Now a good time to expand* | 16 | +3 |
| Earnings trends | -16 | -5 |
| *Note: These components are measured as actual percentages of all respondents and are not net percentages. A net percentage is the percent positive minus percent negative. | ||
WASHINGTON, D.C.— Scorching temperatures received lots of attention in July, but things were not so hot for the nation's small-business owners whose sales, job creation and capital-spending efforts slumped somewhat. Nevertheless, the NFIB Small-Business Optimism Index for the month managed to creep up 1.4 points from the prior month to 98.1 (1986 =100).
"Small-business owners are sending a soothing message, saying they don't expect a downturn in the immediate future," said NFIB Chief Economist William Dunkelberg. "But inflation resulting from energy, labor and production constraints is slowing GDP growth, which will probably be down around 3 percent this year."
This shift isn't directly due to Federal Reserve tightening, he said, noting no change in the percent of owners worried about borrowing money.
Regular borrowing in July fell three points to 38 percent of owners. The share reporting that loans are harder to get in recent months rose one point to a net 6 percent. Only 6 percent cited the cost and availability of credit as their main problem, well below the record 37 percent. Still, trend is up. Also unchanged, 38 percent of those surveyed said all their credit needs were met; just 4 percent reported problems.
No shift either for the 30 percent claiming higher short-term loan rates. The average rate for short-maturity loans rose 30 basis points to 9.1 percent, well above the 5.7 percent at the start of the expansion in September 2003.
Weaker sales caused a slip in second-quarter earnings. Of the 35 percent reporting lower earnings compared to the previous three months, 29 percent cited weaker sales, 17 percent said materials cost more, 12 percent blamed lower selling prices, 6 percent cited more expensive labor, and 4 percent asserted higher insurance costs. Higher taxes and regulatory costs were problems for 3 percent.
Of the one-fourth reporting higher earnings, 60 percent cited stronger sales, up 10 points, and 8 percent credited higher selling prices. Four percent cited lower labor costs.
Although rising 6 points to a seasonally adjusted net 15 percent, job-creation plans were weak, but positive, in all industries -- strongest among wholesale trades, manufacturing and construction. Regionally, Southern firms led, followed by the Mountain and Pacific areas. New England and the South Atlantic had positive plans, but were the weakest of the regions.
Fifteen percent of owners increased employment in July by an average of 3.7 workers per firm (seasonally-adjusted) and 10 percent cut employment by 2.6 workers. Fifty-three percent hired or tried to hire one or more workers, 2 points higher than June. Seventy-nine percent of those wanting to hire found few or no qualified applicants for the positions they were trying to fill. Twenty-four percent reported unfilled job openings, down a point but historically high, another sign that labor markets are tight. Down 1 point to 11 percent was the share that reported the availability of qualified labor was their top business problem.
Overall spending activity faded a bit. Reported capital outlays over the first half of the year fell a point to 61 percent of firms. Forty-six percent spent for new equipment, slightly more than one-fifth acquired vehicles and 14 percent improved or expanded facilities. Sixteen percent bought new fixtures and furniture while 6 percent acquired new buildings or land for expansion.
Plans for capital expenditures over the next few months gained four points to 31 percent and were most frequent in manufacturing, followed by professional and non-professional service firms, finance, insurance and real estate. Manufacturers were also strong spenders, but construction firms weakened substantially.
The number of owners who said now is a good time to expand facilities rose three points to 16 percent. A net-negative 6 percent expect business conditions to improve over the next six months, two points more positive than June. The share expecting improvement in real sales volumes gained 5 points to 18 percent. Reports of second-quarter profit gains fell when sales slowed quickly from the first quarter and costs could not be reduced proportionately.
The net percent of firms raising average selling prices was unchanged at 23, seasonally adjusted. Unadjusted, nearly one-third reported raising average selling prices, down one point; 10 percent reported lower selling prices. Continuing a trend that prevailed in the first half of the year, reports of price hikes in the service sectors remained muted, especially in finance, insurance and real estate, and price-increase leaders were manufacturers and construction firms.
As many firms reported inventory reductions as reported gains. A net-negative 2 percent said their reported stocks were "too low," one point lower than June, but historically lean. A net 3 percent noted higher sales in the past three months, 3 points lower than June. Seasonally unadjusted, slightly more than one-third reported higher sales and 22 percent confirmed lower sales.
Expected-real sales volumes strengthened. The net share expecting higher real sales rose 5 points to 18 percent, an expectation that sales trends will be reversed in the future. This improved outlook added 1 point to the net percent of owners planning to increase stocks to one percent. Unadjusted, 13 thirteen percent planned to add to inventories and 14 percent planned reductions. Dunkelberg noted, "If sales don't increase as expected, involuntary inventory investment will rise."
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 leading small-business advocacy group. A nonprofit, nonpartisan organization founded in 1943, NFIB represents the consensus views of its members in Washington and all 50 state capitals.
