Small Business Optimism Index Improves in April
Contact: Melissa Sharp 202-314-2068
WASHINGTON, May 11, 2010 – The National Federation of Independent Business Index of Small Business Optimism gained 3.8 points in April, rising to 90.6 and ending seven straight quarters of under 90 readings1. The persistence of Index readings below 90 is unprecedented in survey history. Nine of the 10 Index components rose, particularly the outlook for general business conditions and sales, and one was unchanged. Still, job measures barely moved and capital expenditure plans were flat.
“The gains are a step in the right direction, but they are not enough to signal a solid recovery is in place,” said William Dunkelberg, NFIB chief economist. “Owners are feeling a little better about things, but not enough to turn them into concrete action.”
Employment
Seasonally adjusted, the average employment per firm was negative 0.18 in April. Since July 2008, employment per firm has fallen steadily each quarter, logging the largest reductions in the survey’s 35-year history.
Eleven percent (seasonally adjusted) reported unfilled job openings, up two points but historically still very weak. Over the next three months, 7 percent plan to reduce employment (unchanged) and 14 percent plan to create new jobs (down 1 point), yielding a seasonally adjusted net-negative 1 percent of owners planning to create new jobs. That result is a point better than the March reading, but still very weak.
Capital Spending and Outlook
The frequency of reported capital outlays over the past six months rose one point to 46 percent of all firms in April, two points above the 35-year record low reached most recently in December 2009. Of those making expenditures, 32 percent reported spending on new equipment (up two points), 15 percent acquired vehicles (down one point), and 10 percent improved or expanded facilities (up two points). Four percent acquired new buildings or land for expansion (unchanged), and 10 percent spent money for new fixtures and furniture (up one point).
Plans to make capital expenditures over the next few months were unchanged at 19 percent, 3 points above the 35-year record low.
Four percent characterized the current period as a good time to expand facilities, up 2 points from March. A net 0 percent expect business conditions to improve over the next six months, up 8 points from March.
Sales and Inventories
The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months improved 10 points to a net-negative 15 percent, still negative, but a huge improvement. It is the best reading since September 2008, just before consumers stopped spending in the fourth quarter of 2008. The net percent of owners expecting real sales gains gained nine points, rising to 6 percent of all owners (seasonally adjusted).
A net-negative 18 percent of all owners reported gains in inventories (more firms cut stocks than added to them, seasonally adjusted), 10 points better than December’s record liquidation reading, but unchanged from February and March. This is the 25th negative double-digit month in a row, and the 35th negative month in a row. Plans to add to inventories improved five points to a negative 2 percent of all firms (seasonally adjusted) – still more owners planning to reduce stocks than planning new orders (and not borrowing money to support inventory investment).
Inflation
Fifteen percent of the owners (up four points) reported raising average selling prices, but 24 percent reported average price reductions (down five points). Seasonally adjusted, the net percent of owners raising prices was a negative 11 percent, a nine point increase in the net percent raising prices. April is the 17th consecutive month in which more owners reported cutting average selling prices that raising them.
“Certainly in the near term, inflation is not a risk,” said Dunkelberg.
Earnings
Reports of positive profits improved by 12 points in April, with a net negative 31 percent of small business owners reporting positive profits. Not seasonally adjusted, 14 percent reported profits higher (up 5 points), but 51 percent reported profits falling (down 7 points). The April figures represent significant improvements, but it is hard to ignore that profits for many small firms remain negative.
Of the owners reporting higher earnings, 57 percent cited stronger sales as the primary cause and 7 percent each credited lower labor costs, material costs and higher selling prices. For those reporting lower earnings compared to the previous three months, 57 percent cited weaker sales, 4 percent blamed rising labor costs, 6 percent higher materials costs, 2 percent higher insurance costs, and 6 percent blamed lower selling prices. Six percent blamed taxes and regulatory costs.
Credit
Regular NFIB borrowers, 31 percent (record low) accessing capital markets at least once a quarter, continued to report difficulties in arranging credit. A net 14 percent reported loans harder to get than in their last attempt, down 1 point from March. Overall, 91 percent of the owners reported all their credit needs met or they did not want to borrow.
Only 4 percent of the owners reported finance as their top business problem (down 1 point). Pre-1983, as many as 37 percent cited financing and interest rates as their top problem.
“What small businesses need are customers, giving them a reason to hire and make capital expenditures and borrow to support those activities,” said Dunkelberg. “Bottom line, the recovery will be sub-par in comparison to the recoveries we experienced following past severe recessions such as 1980-82.
1 The survey was conducted through April 30 and reflects 2,197 small business owner respondents. There is nothing magical about 90, other than in comparison to the 1980-82 period when only one quarterly reading fell below 90.
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