08/14/2007
CONTACT: Melissa Sharp, 202-314-2068
| Optimism Components | Net % | Change |
| Plan to increase employment | 13 | +1 |
| Plan to increase capital outlays* | 27 | -1 |
| Plan to increase inventories | 2 | +5 |
| Expect economy to improve | -1 | +4 |
| Expect higher real sales | 14 | +3 |
| Current inventory | -2 | +5 |
| Current job openings* | 23 | -3 |
| Expected credit conditions | -6 | 0 |
| Now a good time to expand* | 16 | +3 |
| Earnings trends | -17 | +1 |
| *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.— American small-business owners aren't ignoring the turmoil on Wall Street, but they're calmly minding the store, according to the latest results of the National Federation of Independent Business Small-Business Economic Trends report. Although entrepreneurs are not exuberant, their outlook remains positive: the Small-Business Optimism Index gained 1.6 points over June figures, rising to 97.6 (1986=100).
"Credit to support reasonable business activities remains readily available for small firms," said NFIB Chief Economist William Dunkelberg. "Unlike the highly publicized mortgage and private-equity mess, there were no indications of credit stress in July, even in construction." Regular borrowing activity rose a point to 36 percent with only a net 5 percent claiming loans harder to get (net = percent reporting loans harder to get minus the percentage reporting loans were easier to obtain).
Job creation plans strengthened slightly and are likely to remain solid; more than half of small firms were trying to hire during the month. Price pressures gave inflation no relief, and capital spending remained in the doldrums. Expectations among owners are favorable for a better economy ahead, including higher expected real sales and positive earning trends. Sixteen percent say this is a good time to expand, a gain of three points from the June reading.
In July, small-business hiring proved steady: 16 percent reported increasing employment an average four workers per firm, compared to 11 percent who trimmed by an average 2.4 workers. "Seasonally adjusted, the numbers are not bad," said Dunkelberg.
Unfilled job openings dropped three points from June to 23 percent, seasonally adjusted. The decline in the share of firms with unfilled openings points to an increase in the unemployment rate in the months ahead. As in June, 13 percent said the availability of qualified labor was their top business problem. Only taxes and the cost and availability of insurance received more mentions.
July's labor market was tight. More than half of owners reported hiring or trying to hire new workers; eight of 10 reported few or no qualified applicants. But looking ahead three months, 17 percent plan to create new jobs, a dip of three points, 7 percent plan reductions producing a seasonally-adjusted net 13 percent who are planning to create new jobs – up a point from June (net is the percent planning to increase, minus the percent planning to reduce total employment).
Across industries, job creation plans were positive, strongest in professional services, wholesale and manufacturing; weakest in retailing and construction, not seasonally adjusted.
Survey results show that the real inflation rate is nudging toward an uncomfortable level. There is a strong relationship between inflation and the net percent of owners reporting higher average selling prices, which remained at 19 percent seasonally adjusted during July. Unadjusted, 28 percent reported raising average selling prices, down three points, and 10 percent reported lowering selling prices, also three points lower than June readings.
Price hikes, net of reductions, were most frequent among retail trades, but subdued in the service sector. Finance, insurance and real estate firms reporting lower prices continued to outnumber those raising prices.
Earnings gains added a point over June. Labor costs continued to pressure earnings, with a seasonally-adjusted net 27 percent reporting higher wages, up a point. "More firms are passing these costs on with higher sales prices, but the gap between the compensation hikes and price increases keeps pressure on profits," Dunkelberg said.
Of the one-fourth of owners reporting higher earnings compared to the previous three months, more than half, 56 percent, cited stronger sales, up a point, and 8 percent credited higher selling prices. Among the 35 percent reporting lower earnings, 37 percent noted weaker sales, 17 percent pointed to higher materials (energy) costs, 9 percent blamed more expensive labor costs, and 6 percent each said higher insurance and lower selling prices were to blame.
Capital spending sagged further in July. Plans for future outlays remained weak, falling a point to 27 percent. The frequency of reported capital outlays over the past six months fell two points to 58 percent. Forty-three percent bought new equipment, 23 percent acquired vehicles, and 14 percent improved or expanded facilities, while a similar share paid for new fixtures and furniture. Seven percent acquired new buildings or land for expansion.
Spending plans over the next few months fell a point to 27 percent, disappointing since the outlook improved a bit in July. Those saying the current period is a good time to expand facilities rose three points to 16 percent. A net-negative 1 percent expect conditions to improve during the next six months, up four points; a net 14 percent expect higher real sales, up three points. "Across all these measures, owners became more optimistic," said Dunkelberg.
A net-negative 2 percent of owners reported a gain in inventory stocks, seasonally adjusted, an improvement from June. For all firms, a net-negative 2 percent reported stocks too low, seasonally adjusted, a five-point improvement. Among construction firms, 7 percent reported stocks too high, 4 percent too low; 6 percent plan increases while 10 percent foresee cuts. In manufacturing, 13 percent reported more inventories than needed versus 6 percent under-stocked. Those planning additions as compared to those hoping to add to inventories were balanced.
Expectations for improvement in real sales volumes rose three points to a net 14 percent, seasonally adjusted, but still eight points lower than at the beginning of the year. Inventories are still considered a bit excessive, owners say, yet the¬ net share intending to increase stocks rose five points to an adjusted net 2 percent, which is good news for growth.
"Bottom line," said Dunkelberg, "owner optimism improved; labor markets remain solid anticipating more of the same for employments growth; capital spending showed some more weakness, and there was no good news about inflation, with one-in-five firms raising prices net of those cutting price levels. Economic growth will be sub-par, but no ‘R word' is in the minds of America's small businesses."
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.
