05/13/2008
CONTACT: Mike Diegel, 202-314-2004
| Optimism Components | Net % | Change |
| Plan to increase employment | 5 | +2 |
| Plan to increase capital outlays* | 26 | +1 |
| Plan to increase inventories | -1 | +1 |
| Expect economy to improve | -12 | +11 |
| Expect higher real sales | -3 | 0 |
| Current inventory satisfaction | 21 | +2 |
| Current job openings* | -11 | -2 |
| Expected credit conditions | 6 | +1 |
| Now a good time to expand* | 6 | +1 |
| Earnings trends | -28 | +5 |
| *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.— "Recession fears are spreading and the economy is showing definite signs of slowing, even on Main Street," according NFIB Chief Economist William Dunkelberg. The NFIB Index of Small Business Optimism rose 1.9 points in April to 91.5 (1986=100). Half of the gain was due to an improved outlook for business conditions 6 months out, and a quarter was from improved earnings trends. At the same time, rising prices are becoming a matter of serious concern.
In April, small business owners reported no increase in employment, which is an improvement from the reductions reported in March. Eight percent of the owners increased employment by an average of 4.5 workers per firm and 17 percent reduced employment an average of 2.9 workers per firm. Forty-eight percent of the owners hired or tried to hire, and 77 percent of those trying to hire reported few or no qualified applicants for the job openings they were trying to fill. "This is a much stronger labor market than typically found in a recession," Dunkelberg said, "but it is weak."
The employment rate did fall last month. Twenty-one percent (seasonally adjusted) reported unfilled job openings, up two points from March (the 34-year average is 22). Nine percent of the owners reported that qualified labor was their top business problem, up one point but still low compared to six months ago.
Over the next three months, 19 percent plan to create new jobs and 6 percent plan workforce reductions (both down a point), yielding a seasonally adjusted net 5 percent of owners planning to create new jobs--up two points from March. Not seasonally adjusted, job creation plans were positive in all industry groups.
The frequency of reported capital outlays over the past six months was basically unchanged at 56 percent of all firms. Thirty-eight percent reported spending on new equipment, 22 percent acquired vehicles, and 13 percent each improved or expanded their facilities and spent money for new fixtures and furniture. 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, not particularly strong. Six percent characterized the current period as a good time to expand facilities, up one point from March but historically low. A net-negative 12 percent expect business conditions to improve over the next six months, up 11 points from March. A net-negative 3 percent expect increases in real sales (unchanged).
A net-negative 10 percent of owners reported gains in inventory stocks (seasonally adjusted), three points worse than March. Inventory reductions have continued into 2008 and at a somewhat faster pace. Unadjusted, 12 percent reported gains and 21 percent reported inventory reductions. A net-negative 1 percent reported stocks too low (seasonally adjusted), unchanged from March and a very lean reading.
The net percent of owners expecting gains in real sales volumes was unchanged at a net-negative three points, seasonally adjusted. Because of the pessimistic outlook for real sales volumes, more firms plan to continue to cut stocks rather than add to them but at a pace no worse than in February. A net-negative 1 percent of all firms, seasonally adjusted, plan to add to stocks, up one point and a good sign, but still weak. Seasonally unadjusted, 14 percent plan to add to stocks while 13 percent will reduce them.
The net percent of all owners (seasonally adjusted) reporting higher sales in the past three months gained two points, rising to a negative 9 percent, not a pretty picture. Unadjusted, 21 percent of all owners had higher sales and 39 percent reported lower sales. "Clearly the economy is weak compared to six months ago," said Dunkelberg.
A slowing economy is not deterring firms from raising prices. The net percent of owners reporting higher average selling prices rose another two points to a net 20 percent in April. The percent of owners citing inflation as their No. 1 problem was up two points at 14 percent – the highest reading since 1982. The number of those planning to raise prices rose two points to 31 percent of all owners (up nine points from February); not good news for those concerned about inflation. Unadjusted, 35 percent reported raising average selling prices, up one point, and 13 percent reported lower selling prices, down one point.
The percent of owners reporting earnings gains posted a five-point improvement, still cyclically low. Seasonally adjusted, those reporting declining earnings outnumbered those with gains by 28 percentage points. Widespread price increases did not counter the pressures from "backdoor inflation" (now reported by the highest percent of owners since 1982) and weak sales. Twenty percent of all firms reported raising average compensation. "That is a bad-news environment for profits," Dunkelberg said.
Of the owners reporting higher earnings (16 percent, up two points), 56 percent cited stronger sales (up six points), and 13 percent credited higher selling prices. Six percent each cited lower materials and labor costs. For those reporting lower earnings compared to the previous three months (50 percent, down three points), 42 percent blamed weaker sales (down five points), 22 percent cited higher materials costs (including energy) and 4 percent named higher labor costs. Six percent blamed lower selling prices and 2 percent each cited higher insurance costs, and higher taxes for the adverse performance of profits.
"For the ninth straight month since the Federal Reserve declared the existence of a 'credit crunch,' no evidence of credit problems has appeared on Main Street. It remains a Wall Street issue," Dunkelberg said. Regular borrowing activity was reported by 36 percent of the owners, up 3 points from March and typical of readings for the past 15 years. There is no evidence that there are cash flow problems that have increased dependence on credit from the banking system.
The net percent of owners reporting loans harder to get in recent months rose two points to a net 9 percent after falling two points in March (10 percent said "harder," one percent said "easier", the average in 2007 was 6 percent). This is the highest reading since September 2007, but the average reading since September's shocking Federal Reserve rate hike is 7 percent. Thus, April is at the high end of the historical range for the past decade, but not indicative of a crunch. Only 3 percent of the owners cited the cost and availability of credit as their No. 1 business problem (up one point), far from the record 37 percent reached in 1982 and unchanged for years. Thirty-four percent reported all their borrowing needs met (up two points) compared to 5 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 12 percent (seasonally adjusted), 27 points lower than 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 11 percent (more owners expect that it will be harder to arrange financing), two points worse than March.
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.
