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The NFIB Research Foundation has collected Small Business Economic Trends data with quarterly surveys since the 4th quarter of 1973 and monthly surveys since 1986. Survey respondents are drawn from NFIB's membership. The report is released on the second Tuesday of each month.
November ushered in the holiday season, but it did not translate into enthusiasm among small-business owners, whose optimism increased, but only slightly—under a point (0.9)—for a total reading of 92.5, according to NFIB’s monthly Index. Of note in November is the positive trend, albeit sluggish reality, of job growth. Small-business employment is better at the end of this year than last year, as the NFIB indicators anticipated, but not enough to restore the 2007 level hiring. However, uncertainty remains throughout the sector, as it anticipates increased taxes, regulations and healthcare costs.
“The year is not ending on a high note in the small-business sector of the economy. The ‘bifurcation’ continues with the stock market hitting record high levels, but the small-business sector is showing little growth beyond that driven by population growth. There is also a hint that employers are getting an inkling of what Obamacare might mean for labor costs, concern about the cost and availability of insurance bumped up 3 percentage points after a long period of no real change. Small-business owners who provide health insurance may soon find that their plans ‘unacceptable’ to Obamacare and be obliged to either pay more for the coverage or abandon it and pay the benefit in cash. This will be a major source of angst and uncertainty in 2014.” – NFIB chief economist Bill Dunkelberg
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This survey was conducted in November 2013. A sample of 3,938 small business owners/members was drawn
and 762 usable responses were received for a response rate of 19%.
Owner sentiment increased by 0.9 points to 92.5, a dismal reading as has been the case since the recovery started. Over half of the improvement was accounted for by the labor market components which is certainly good news, lifting them closer to normal levels. Expected business conditions though deteriorated further - lots of dismal views of the economy coming next year. The Index has stayed in a “trading range” between 86.4 and 95.4 since the recovery started, poor in comparison to an average reading of 100 from 1973 through 2007.
NFIB owners increased employment by an average of 0.05 workers per firm in November (seasonally adjusted), half the October figure, but positive. Seasonally adjusted, 14% of the owners (up 2 points) reported adding an average of 3.7 workers per firm over the past few months. Offsetting that, 12% reduced employment (up 3 points) an average of 3.4 workers. Fifty-one percent of the owners hired or tried to hire in the last three months and 44% reported few or no qualified applicants for open positions. This is the highest level of hiring activity since October 2007. Twenty-three percent of all owners reported job openings they could not fill in the current period (up 2 points), a positive signal for the unemployment rate and the highest reading since January 2008. Thirteen percent reported using temporary workers, down 2 points from October. Job creation plans gained 4 points, rising to 9%, reversing the loss posted in October.
The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past 3 months compared to the prior 3 months was unchanged at a negative 8%. Fifteen percent still cite weak sales as their top business problem, but is the lowest reading since June 2008. The net percent of owners expecting higher real sales volumes rose 1 point to 3 percent of all owners after falling 6 points in October (seasonally adjusted), a weak showing.
The pace of inventory reduction continued with a seasonally adjusted net negative 7% of all owners reporting growth in inventories, 1 point worse than in October. The negative outlook for the economy and real sales prospects adversely impacted inventory satisfaction. The net percent of owners viewing current stocks as too low improved only 1 point, to negative 4% in November. Inventories are too large, especially given the poor outlook for sales improvements. The net percent of owners planning to add to inventory stocks was a net 0% (up 1 point), no new orders for inventory when stocks are excessive compared to expected sales.
The frequency of reported capital outlays over the past 6 months fell 2 points to 55%, stuck in the “mid-50s” since recovering in 2012 from the lows of 45 reached in late 2009 and early 2010. Capital spending is at its highest point since early 2008 but has been stuck well below normal levels for several years, threatening the improvements in productivity needed to raise real wages. The percent of owners planning capital outlays in the next 3 to 6 months rose 1 point to 24%.
Seasonally adjusted, the net percent of owners raising selling prices was 2%, down 3 points. Twenty-three percent plan on raising average prices in the next few months (up 3 points), and 3% plan reductions (unchanged). Seasonally adjusted, a net 19% plan price hikes, up 1 point. Not much of this is likely to “stick” if owners are correctly forecasting the future of the economy over the next six months.
Earnings trends deteriorated a bit in November, falling to a net negative 24%. If these were publically traded companies, the stock indices would not look good. The economy remains bifurcated, large firms doing fairly well with small businesses showing little growth or improvement.
Three percent reported reduced worker compensation and 16% reported raising compensation, yielding a seasonally adjusted net 14% reporting higher worker compensation (down 2 points). A net seasonally adjusted 14% plan to raise compensation in the coming months, up 4 points. Overall, the compensation picture remained at the better end of experience in this recovery, but historically weak for periods of economic growth and recovery. With a net 14% raising compensation but a net 2% raising selling prices, profits will continue to be under pressure.
Four percent of the owners reported that all their credit needs were not met, down 2 points. Thirty-two percent reported all credit needs met, and 52% explicitly said they did not want a loan. Only 2% reported that financing was their top business problem. Twenty-nine percent of all owners reported borrowing on a regular basis, up 1 point but a near-record low. A net 6% reported loans “harder to get” compared to their last attempt (asked of regular borrowers only), unchanged from October. The average rate paid on short maturity loans was steady at 5.4%, unlikely to ever go below 5%. The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted negative 7% (more owners expect that it will be “harder” to arrange financing than easier), 1 point better than October and little changed over the past few years.
NFIB Chief Economist
GDP growth was unexpectedly strong, but most of that was inventory building, with some more exporting. Domestic sales grew only 1.9%, more in tune with other measures of how well the economy is doing. Inflation was low as expected from the NFIB data as few are raising prices. Employment was better at the end of the year, as the NFIB indicators anticipated – but not enough to restore 2007 levels of employment, six years later. The only item in small business owners’ “top 10” list of issues is that energy prices are falling. So unfortunately, not much to be optimistic about.
There is a hint that owners are getting an inkling of what Obamacare might mean for labor costs, concern about the cost and availability of insurance bumped up 3 percentage points after a long period of no real change. Small firms aren’t currently required to provide insurance (this could change in the future of course), but many do. These owners may find their insurance plans “unacceptable” to Obamacare and be obliged to either pay more for the coverage or abandon it and pay the benefit in cash. This will certainly be a source of angst and confusion in 2014.
The year is not ending on a high note in the small business sector of the economy. The “bifurcation” continues, the “Fortune 500” are performing well with the stock market hitting record high levels. But the small business sector is showing little growth beyond that driven by population growth. Since January 1st, the S&P has added $3.8 trillion in value – but have output and profits really increased that much? Or is this the work of the Federal Reserve which has voted to leave rates unchanged in the last 39 meetings, and likely adding to this total in December. Maybe fiscal policy will get on course and give owners something to cheer about.
Earlier issues of the small business reports are available
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