10/10/2006
CONTACT: William Dunkelberg, (610) 209-2955, or Melissa Sharp, (202) 554-9000
| Optimism Components | Net % | Change |
| Plan to increase employment | 17 | +0 |
| Plan to increase capital outlays* | 30 | +2 |
| Plan to increase inventories | -1 | 0 |
| Expect economy to improve | +2 | +10 |
| Expect higher real sales | 17 | +7 |
| Current inventory | -6 | 0 |
| Current job openings* | 25 | 0 |
| Expected credit conditions | -5 | +4 |
| Now a good time to expand* | 18 | +5 |
| Earnings trends | -8 | +11 |
| *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.— Small business hopes rebounded in September as the National Federation of Independent Business Small-Business Optimism Index rose 3.5 points to a more normal level of 99.4. "This confirms the slowdown in the economy anticipated in the July survey – down, but not out," said NFIB Chief Economist William Dunkelberg. The Index, bouncing back to near its 30-year average, was lifted by positive movement among six components including the outlook for an improved economy, favorable earnings and higher sales. Inflation pressure also eased.
Job creation plans held firm at August's near-record levels. Over the next three months, nearly one in five firms plan to create new jobs – down a point – while those planning workforce reductions fell two points to 7 percent, yielding a seasonally-adjusted net 17 percent of owners planning to add new positions, the highest reading since 2004 and unchanged from August.
Seasonally adjusted, 11 percent of owners reported average employment increases of 2.5 workers per firm, and 14 percent reported reductions averaging 3.2 workers, not a lot of job creation. The number of firms increasing employment was lower than the number cutting jobs. Fifty-five percent hired or tried to hire one or more workers, unchanged from August, and except for May's reading, the highest level in five years. The tight labor market is evident: 80 percent of those who tried to hire reported few or no qualified applicants for the positions they were trying to fill. As in August, one-fourth had unfilled openings, also signifying that labor markets are tight. Fourteen percent of owners reported that the availability of qualified labor was their top business problem, up two points since last month and the highest reading since 2001.
The net-share reporting earnings improvements gained 11 points, but the frequency of price hikes fell and compensation increases rose, boosting concerns about profits. Reports of compensation increases edged up to 28 percent, the highest level since early 2005. Only a net 20 percent said they were able to raise prices to offset costs. Declining fuel costs helped some firms, but most are in industries that are not heavily dependent on fuel.
Owners' favorable expectations for the months ahead bumped their capital spending plans up two points to 30 percent. Nearly two-thirds reported outlays over the past six months, a slight improvement over August. Spending remained steady as 48 percent bought new equipment, 22 percent acquired vehicles, 15 percent spent for new fixtures and furniture and 11 percent improved or expanded their facilities.
The share believing now is a good time to expand facilities rose five points to 18 percent, and those expecting better business conditions in the next six months climbed 10 points to a net 2 percent. Owners do not expect a boom, just reasonably solid domestic business growth.
They are worried that inventories are too fat. Inventory gains eased two points to a net 1 percent, but the number of those reporting stocks as too low was unchanged from August – the worst reading since 2003. Even with more optimism about sales, current inventories are considered a bit heavy. Firms in the construction industry are not reporting excess stocks any more frequently than businesses in other industries.
In the most recent three-month period, a net 5 percent, reported higher sales, up three points from August. Seasonally unadjusted, sales were higher for 31 percent of small-business owners and lower for 20 percent.
Expected real-sales volumes recovered from the August decline, gaining seven points. The net-percent expecting higher real sales rose to 17 percent.
Signs of easing inflation appeared in September. The net-percent raising average selling prices fell two points to 20 percent, seasonally adjusted. "Since April, the net-share raising average selling prices has declined six points, a happy event for the Fed," Dunkelberg said. Unadjusted, 27 percent reported raising average selling prices, down seven points, and 8 percent reported lower selling prices, down five points.
Regular borrowing activity dropped 11 points to 35 percent, and was in the range observed for the past 15 years, as was the net-percent of owners reporting loans harder to get in recent months – down five points to a net 3 percent. Only 3 percent cited the cost and availability of credit as their key business problem, far from the 37 percent record set in 1982. Slightly more than one third reported having all their credit needs met, compared to 4 percent who had problems.
"Overall, economic growth will be slower than in the first half of the year, but labor markets will remain tight. Compensation gains will put more pressure on profits, as fewer firms are able to pass on those costs in the form of higher prices," said Dunkelberg. "It appears that inflation pressures will continue to ease, because price hikes were most frequent in manufacturing and construction, industries where the demand outlook is likely to produce fewer price hikes. Soft landing appears to be the outcome."
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 and all 50 state capitals.
