11/14/2006
CONTACT: Melissa Sharp, (202) 554-9000
| Optimism Components | Net % | Change |
| Plan to increase employment | 16 | -1 |
| Plan to increase capital outlays* | 31 | 1 |
| Plan to increase inventories | 4 | 5 |
| Expect economy to improve | 11 | 9 |
| Expect higher real sales | 17 | 0 |
| Current inventory | -3 | 3 |
| Current job openings* | 25 | 0 |
| Expected credit conditions | -6 | -1 |
| Now a good time to expand* | 20 | 2 |
| Earnings trends | -14 | -6 |
| *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.— Improved expectations for economic growth and a need to add to inventories sent the National Federation of Independent Business Optimism Index up to 100.7 in October. Five of the 10 components of the index improved, led by a nine-point hike among those who said they expect a better economy in the coming months, and one was unchanged.
Seasonally adjusted, small firms produced solid growth in October, with 14 percent increasing average employment by 3.1 workers per firm, while 9 percent trimmed workforces by an average 3.5 employees. Fifty-five percent hired, or tried to hire, one or more workers, unchanged from August and September, and still one of the highest readings in five years. Twenty-seven percent reported unfilled job openings, another sign of tight labor markets. More than eight in 10 could find few or no qualified applicants for unfilled positions. The top business problem for 15 percent of those responding was the availability of qualified labor, up another point and the highest reading since 2001.
Looking ahead three months, a seasonally adjusted net 16 percent (the percent planning reductions subtracted from the percent planning to increase employment) are planning to create new jobs, down a point from August and September but one of the highest readings since 2004. Job-creation plans were positive in all industry groups except agriculture. Regionally, New England and the Mid-Atlantic states were weak, with more firms planning reductions than increases in the Mid-Atlantic region. Overall, job creation plans are weaker in the Northern states than in the South.
The net-percent of firms raising average selling prices fell four points to 16 percent, seasonally adjusted. Since April, the net-percent raising average selling prices has declined 10 points.
"Price pressures are fading, and it's not just the construction sector that is bringing the pressures down," said NFIB Chief Economist William Dunkelberg, "retail inflation is easing as well." Unadjusted, one-fourth confirmed raising average selling prices, down two points, and 12 percent reported lower prices, up four points. Hikes were most frequent among wholesalers and manufacturers. Increases among construction firms faded substantially. Those in finance, insurance and real estate that reported lower prices have outnumbered those raising prices for months, reflecting the weakness in housing.
The net-percent reporting earnings improvements lost six points from September, falling to the average for the year, no surprise in view of weaker reports of sales gains and a decline in the frequency of price hikes. A net 23 percent increased worker compensation, down five points from September.
Of the 25 percent reporting higher earnings, more than half cited stronger sales and 5 percent each credited less expensive labor, lower materials costs and higher selling prices. For the one-third reporting lower earnings compared to the previous three months, 36 percent cited weaker sales, 15 percent cited higher materials costs (energy), 12 percent blamed lower selling prices and 6 percent each pointed to higher labor, insurance and financing costs. Three percent named higher taxes and regulatory costs.
Owners were pleased with October's inventory levels with a net 0 percent reporting gains, down one point (seasonally adjusted). Unadjusted, those with increases nearly matched those with drawdowns. In construction, 6 percent had gains and 16 percent had reductions. Construction-firm owners are approaching an acceptable balance, with reports of high-versus-low stocks balancing at 6 percent each. For all firms, a net-negative 3 percent reported stocks too low, three points better than September, and an indication that excess inventories did not come from construction.
Higher sales in the most recent three months were reported by a net 2 percent, down three points from September. Seasonally unadjusted, 29 percent reported higher sales while 23 percent indicated lower sales.
Expected real-sales volumes held at September's solid level, with a net 17 percent foreseeing higher real sales in coming months, seasonally adjusted. Satisfaction with inventories, recorded at a negative 3 percent, suggests that inventories are still too high, but the share intending increases gained five points, rising to a net 4 percent, seasonally-adjusted. "That's a good sign as the holiday season nears," said Dunkelberg.
Capital spending, overall, remains steady with no signs of acceleration even with the economy's record profit performance. Plans for capital expenditures over the next few months gained a point, rising to 31 percent of all owners. Spending plans were most frequent among professional services firms, followed by manufacturing and construction.
One-fifth of the owners said they believe the current period is a good time to expand facilities, up seven points from August. A net 11 percent expect business conditions to improve over the next six months, a 19-point gain over August. Owners are confident that the economy will continue to perform well in 2007.
The number of those reporting frequent capital outlays over the past six months declined one point to 62 percent. Forty-four percent spent for new equipment, one-fourth acquired vehicles, 15 percent improved or expanded facilities, and a similar share purchased new fixtures and furniture. Eight percent acquired new buildings or land for expansion.
Regular borrowing edged up two points to 37 percent, about the same level observed for the past 15 years. Only 4 percent cited the cost and availability of credit as their number one business problem, far from the record thirty-seven percent reached in 1982.
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 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.
