03/11/2008
CONTACT: Melissa Sharp, 202-554-9000
| Optimism Components | Net % | Change |
| Plan to increase employment | 11 | +2 |
| Plan to increase capital outlays* | 26 | +1 |
| Plan to increase inventories | -2 | +2 |
| Expect economy to improve | -9 | +13 |
| Expect higher real sales | 0 | -4 |
| Current inventory satisfaction | -4 | 0 |
| Current job openings* | 20 | -4 |
| Expected credit conditions | -8 | +1 |
| Now a good time to expand* | 8 | -1 |
| Earnings trends | -25 | +2 |
| *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.— The National Federation of Independent Business Small Business Economic Trends Report optimism index increased marginally in February, but continued to provide signals of a stronger-than-perceived economy. "There is no credit crunch in sight, and there are many unfilled jobs," said NFIB Chief Economist William Dunkelberg. "But the economy is plagued by a dismal outlook, rising inflation and, contradictorily falling employment." The Index rose to 92.9 (1986=100), an improvement from last month's reading of 91.8 which was the lowest since January 1991.
In February, small business owners reported reducing employment an average of .27 employees per firm (seasonally adjusted). Twelve percent of the owners increased employment by an average of 3.2 workers per firm, and 15 percent reduced employment an average of 4.3 workers per firm. Forty-six percent of the owners hired or tried to hire, up a point from January but down 11 points from last September. Seventy-eight percent of those trying to hire reported few or no qualified applicants for the job openings they were trying to fill. For owners trying to hire new workers, labor markets remain tight.
Twenty percent (seasonally adjusted) reported unfilled job openings, down four points from January (the 34-year average is 22). Twelve percent of owners reported that the availability of qualified labor was their top business problem, up one point from January.
The number of firms planning to create new jobs rose three points, with 21 percent planning to hire over the next three months, while 4 percent plan workforce reductions (down four points), yielding a seasonally-adjusted net 11 percent of owners planning to hire – up two points from January.
"A recession mentality has not yet settled into labor market activity," Dunkelberg said.
The frequency of reported capital outlays over the past six months was unchanged at 58 percent of all firms. Forty percent reported spending on new equipment (down two points), 24 percent acquired vehicles (up a point), 15 percent spent money for new fixtures and furniture (up three points), and 13 percent improved or expanded their facilities (unchanged). Six percent acquired new buildings or land for expansion.
Plans to make capital expenditures over the next few months rose one point to 26 percent of all firms. Eight percent of the owners expressed the view that the current period is a good time to expand facilities, down one point from January. A net-negative 9 percent expect business conditions to improve over the next six months, a gain of 13 points from January. Expectations of increases in real sales gave up four points, falling to a net-zero percent expecting improvements.
The inventory reductions that started last year continued into February of 2008. A net-negative 2 percent of owners reported gains in inventory stocks (seasonally adjusted), just two points better than January. Unadjusted, 13 percent reported gains, and 21 percent reported inventory reductions. A net-negative 4 percent of all firms reported stocks too low (seasonally adjusted), unchanged from January and still unsatisfactory from an historical perspective – most likely due to the dismal expectations for the growth in real sales.
The net percent of owners expecting gains in real sales volumes lost four points, falling to a net-zero percent, seasonally adjusted. Because of the pessimistic outlook for real sales volumes, more firms plan to continue to cut stocks rather than add to them. A net-negative 2 percent of all firms (seasonally adjusted) plan to add to stocks (two points better than January). Seasonally unadjusted, 16 percent plan to add to inventories while 12 percent will reduce stocks.
The net percent of all owners (seasonally adjusted) reporting higher sales in the past three months lost one point, falling to a negative 8 percent. Unadjusted, 22 percent of all owners reported higher sales, and 35 percent reported lower sales.
"Clearly, the economy is weak compared to six months ago," Dunkelberg said.
However, the weak economy did not deter owners from raising their average selling prices. The net percent of owners reporting higher average selling prices rose five points to a net 13 percent in February. While some owners reported raising prices, others worried about inflation. Eight percent of owners cited inflation as their No. 1 problem, the highest reading since the early 1980s. Plans to raise prices fell four points to 22 percent of all owners.
"There are still too many owners planning to raise prices to drive the inflation rate down," said Dunkelberg.
Unadjusted, 31 percent reported raising average selling prices, up six points, and 15 percent reported lower selling prices, unchanged.
The percent of owners reporting earnings gains remained historically weak, rising just two points from January. A net 23 percent of all firms reported raising average compensation, this outweighed the number of owners that increased prices and therefore contributed to the low earnings gains.
Among owners reporting higher earnings (16 percent, up one point), 60 percent cited stronger sales (unchanged), 13 percent pointed to higher selling prices, and 7 percent credited lower materials costs. For those reporting lower earnings compared to the previous three months (45 percent, up two points), 47 percent cited weaker sales (unchanged), 13 percent cited higher materials costs (including energy), and 2 percent blamed higher labor costs. Four percent each cited higher insurance costs, lower selling prices and higher taxes for the adverse performance of profits. Overall, weak sales held profits down, even though more firms raised prices and reports of higher worker compensation fell two points.
Only 3 percent of the owners cited the cost and availability of credit as their No. 1 business problem (down a point), far from the record 37 percent reached in 1982 and unchanged for years, but the percent citing inflation as their No.1 problem – 8 percent – is double the level early in 2007.
Regular borrowing activity was reported by 34 percent of owners, down two points from January and typical of readings for the past 15 years. There is no evidence that cash flow problems have increased dependence on credit from the banking system.
The net percent of owners reporting loans harder to get in recent months fell two points to a net 5 percent; the average in 2007 was 6 percent. Thirty-five percent reported all their borrowing needs met (up one point) compared to 4 percent who reported problems obtaining desired financing (down one point).
The net percent of owners reporting higher rates on their short-term loans was a negative 9 percent (seasonally adjusted), down 9 points from January and 24 points from last September, a result of the impact of Federal Reserve rate cuts on variable priced loans (including lines of credit). The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted net-negative 8 percent, a point better than January. "This indicates that more owners see credit tightening than easing on Main Street in spite of the Fed's expansionary policies," said Dunkelberg.
"Every Fed policy announcement has triggered additional declines in small business owner optimism and spending activity. However, credit conditions on Main Street have held up, with no evidence of a credit crunch. This is good news for now and for the start of the pickup in economic activity that will follow in future periods," he 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 largest 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.
