02/13/2007
CONTACT: Melissa Sharp, (202) 314-2068
| Optimism Components | Net % | Change |
| Plan to increase employment | 17 | +7 |
| Plan to increase capital outlays* | 30 | +4 |
| Plan to increase inventories | 2 | +2 |
| Expect economy to improve | -1 | +3 |
| Expect higher real sales | 22 | +4 |
| Current inventory | -2 | +5 |
| Current job openings* | 26 | +7 |
| Expected credit conditions | -7 | 0 |
| Now a good time to expand* | 17 | 0 |
| Earnings trends | -21 | -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.— Rebounding on good news from the labor market, the nation's small businesses perked up in January, lifting the NFIB Small-Business Optimism Index nearly two-and-a-half points to 98.9 (1986=100). Although actual job creation was weak, in January (as predicted in the December survey), key labor indicators, including job creation plans and job openings, accounted for most of the upward momentum. Seven of the 10 index components posted gains, two were unchanged. Profit performance was down.
Researchers determined that in the coming three months, nearly one-fourth of small firms, 23 percent, plan to create new jobs, a hike of nine points. Just 5 percent plan workforce reductions, down four points, yielding a seasonally-adjusted net 17 percent planning to create new jobs. "This is a near-record high reading," said NFIB Chief Economist William Dunkelberg. "December's labor market clouds have dissipated."
All industry groups except agriculture, which typically lags in winter months, posted positive plans. Strongest were those in manufacturing and financial services; weakest were construction firms. Regionally, the South produced strong job creation plans, but in New England and part of the Midwest, more firms plan to reduce employment than to increase it. "Job creation should continue reasonably strong, assuming owners can find qualified applicants," Dunkelberg said.
Seasonally adjusted, 15 percent of owners reported increasing employment in January an average of 3.1 workers per firm, and 16 percent reported workforce reductions averaging 2.9 workers – a modest gain in employment per firm. Nearly half hired or tried to hire one or more employees, 84 percent of whom reported few or no qualified applicants for the positions they were trying to fill. Slightly more than one-fourth, 26 percent seasonally-adjusted, reported unfilled job openings, up seven points from December. Fourteen percent said the availability of qualified labor was their top business problem, up four points.
Capital spending plans found their footing, recovering from the December decline rising four points to 30 percent. Plans were most frequent among financial services and agriculture firms, followed by manufacturing and wholesale trades. "The recovery of spending plans is good," Dunkelberg said, "because it reduces the likelihood that expenditures will fade in the near future."
The frequency of reported capital outlays over the past six months rose a point to 62 percent of all firms. Forty-six percent reported spending on new equipment, 25 percent acquired vehicles, and 15 percent improved or expanded facilities. Seven percent acquired new buildings or land for expansion, and 15 percent spent for fixtures and furniture.
A net 1 percent of owners reported a gain in inventory stocks (seasonally adjusted), a four point gain over December when, seasonally adjusted, firms were clearly reducing stocks. In construction, 10 percent reported gains while 16 percent reported reductions, reflecting liquidation of excess supply of new homes and building materials. Manufacturing firms were more aggressive: 22 percent gained while 18 percent cut back. Twenty-two percent of retailers reported gains and 30 percent reductions coming out of the holiday season.
A net-negative 2 percent reported stocks too low, a five-point improvement, indicating that liquidation of excess inventory was successful. Among construction firms, 6 percent reported stocks too high, 8 percent too low. Manufacturers claiming high inventories were more than twice the number of owners reporting stocks too low. More firms in construction and manufacturing plan price cuts than plan increases. "This should help clear out the excess inventory," said Dunkelberg.
Actual higher sales were reported by 23 percent, and 30 percent claimed lower sales, resulting in a seasonally-adjusted net-negative 3 percent with higher sales in the most recent three months, down six points from December. Sales slowed, in part because prices have not advanced.
Expected real-sales volumes rose four points to a net 22 percent of firms who are expecting higher real sales in the months ahead, seasonally adjusted. This squares with strengthening job creation plans – workers are needed to produce the output and take care of expected customers.
Good inflation news continued with a net 12 percent of owners reporting higher selling prices, up four points from December, but the second lowest figure since January 2004. Unadjusted, 25 percent reported raising average selling prices, up two points, and 11 percent reported lower selling prices, down five points. Price hikes were most frequent among professional-service firms, wholesalers and manufacturers. Among finance, insurance and real estate firms, those reporting lower prices continued to outnumber those raising prices, reflecting the weakness in housing.
The net percent of firms reporting earnings improvements lost six points from December levels. Relatively few firms reported raising prices and many cut prices. To make matters worse, a net 26 percent reported increasing worker compensation, up five points from December, putting a squeeze on profits.
Of the 17 percent reporting higher earnings, nearly two-thirds, 65 percent, cited stronger sales, and 6 percent credited higher selling prices. Of the 39 percent reporting lower earnings compared to the previous three months, 38 percent pointed to weaker sales, 8 percent cited costlier materials, 5 percent each blamed higher labor, insurance costs, taxes and regulations, while 3 percent cited lower selling prices.
Regular borrowing activity was reported by 37 percent, up two points from December. The net percent of owners reporting loans harder to get in recent months was unchanged at a net 6 percent. Only 5 percent of the owners cited the cost and availability of credit as their number one business problem, far from the record 37 percent reached in 1982. "Overall, credit has become more expensive with Fed hikes, but no harder to get," Dunkelberg said.
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 (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.
