Indianapolis, March 11,
2014- Small business optimism
continues its winter hibernation with the latest Index dropping 2.7 points to
91.4, a reading that historically has been associated with recessions and
periods of sub-par growth. The one highlight in the January survey, a surge in hiring
plans, was crushed in February by the continued onslaught of a wintry recovery
now in its 5th year.
“At the state level we
have a predictable business climate with a strong majority in Indianapolis that
wants to minimize regulations and keep taxes low,” said NFIB Indiana State Director Barbara Quandt. “But there are big, unresolved issues at the
federal level by which small businesses in Indiana are concerned. The biggest among those is the disastrous
federal health care law that punishes employment.”
NFIB Chief Economist Bill Dunkelberg
said minimum wage and environmental regulations are also weighing down small
“Uncertainty is a major
cause of the Index’s dip. Lacking any progress in Washington and facing continued
unknowns with the healthcare law, the EPA, the minimum wage, tax reform and
more, it is no surprise that the Small Business Optimism Index fell, reversing
a few months of modest gains,” said Dunkelberg. “As long as uncertainty
remains high, owners will remain cautious when it comes to increasing
inventory. Business owners aren’t going to bet their money on a future they
cannot see clearly.
The February report on
net new jobs was better than expected, but inadequate to the task of reducing
the unemployment rate which rose a tenth of a point. As disturbing as the
decline in job creation plans was, the plunge in expectations for improvements
in real sales in the coming months and for business conditions 6 months from
now, show that we shouldn’t expect blue skies soon.”
A review of the February
indicators is as follows:
Labor Markets. NFIB owners increased
employment by an average of 0.11 workers per firm in February (seasonally
adjusted), virtually unchanged from January. Seasonally adjusted, 12
percent of the owners (down 1 point) reported adding an average of 3.0 workers
per firm over the past few months. Offsetting that, 10 percent reduced
employment (down 1 point) an average of 2.7 workers, producing the seasonally
adjusted net gain of 0.11 workers per firm overall. Since the weather in
February was about as bad as in January, 150,000 new jobs would be a pleasant
surprise but the unemployment rate will likely not change. Seasonal
adjustments only work when the weather is “average” for the period, which it
clearly has not been for the last 2 months.
The remaining 78 percent
of owners made no net change in employment. Forty-seven percent of the
owners hired or tried to hire in the last three months and 40 percent (85
percent of those trying to hire or hiring) reported few or no qualified
applicants for open positions.
Creation. Twenty-two percent of
all owners reported job openings they could not fill in the current period
(unchanged). This suggests that the unemployment rate did not change much
in February. Thirteen percent reported using temporary workers, down one
point from January.
Job creation plans gave
up January’s welcome gain, falling 5 points to a seasonally adjusted net 7
percent. Not seasonally adjusted, 17 percent plan to increase employment
at their firm (down 1 point), and 4 percent plan reductions (down 1 point).
net percent of all owners (seasonally adjusted) reporting higher nominal
sales in the past 3 months compared to the prior 3 months improved 2 points to
a net negative 8 percent, typical of the 2013 experience. Sixteen percent
cite weak sales as their top business problem, still above levels experienced
in “normal” times. Seasonally unadjusted, 21 percent of all owners
reported higher sales (up 1 point) and 34 percent reported lower sales
(unchanged), not a very strong report.
Earnings and Wages. Earnings trends were stable at a miserable net negative 27
percent (net percent reporting quarter to quarter earnings trending higher or
lower). Pressure from labor costs that can’t be passed on are keeping
pressure on earnings gains.
Two percent reported
reduced worker compensation and 23 percent reported raising compensation,
yielding seasonally adjusted net 19 percent reporting higher worker
compensation (unchanged), the best readings since 2008. A net seasonally
adjusted 14 percent plan to raise compensation in the coming months, up 3
points from January. 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 19 percent raising compensation but
net 1 percent raising selling prices, it is easy to see why profits remain
under pressure. For now, higher compensation costs are not being passed
on to customers.
Credit Markets. On Main Street, credit continues to be a non-issue for small
employers. Five percent of the owners reported that all their credit needs were
not met, 1 point above the record low. Twenty-nine percent reported all
credit needs met, and 53 percent explicitly said they did not want a loan. Only
2 percent reported that financing was their top business problem compared to 19
percent citing taxes, 21 percent citing regulations and red tape and 16 percent
citing weak sales.
Capital Outlays. The percent of owners planning capital outlays in the next 3 to 6
months rose 1 point to 25 percent. Fifty-seven percent reported outlays, down 2
points from January and typical of reports in recent months. The expiration of
expensing allowances temporarily boosted spending in December but now readings
are back to normal levels of the last year.
Overall, this is not an outlook conducive to more capital spending and
- The pace of inventory reduction
continued, with a net negative 2 percent of all owners reporting
growth in inventories (seasonally adjusted), two points lower than January
and trending toward balance. Unadjusted, 12 percent reported
growth in inventory stocks (up 2 points) and 20 percent reported inventory
- However, stocks are still
considered excessive in spite of this long period of net reductions.
The net percent of owners viewing current stocks as “too low”
deteriorated 2 points to a net negative 4 percent. This is due
primarily to a large deterioration in sales expectations. Consequently,
the net percent of owners planning to add to inventory stocks fell 2
points to a net negative 5 percent indicating little appetite to add to
stocks in the current environment.
Inflation. Fifteen percent of the NFIB owners reported reducing their average
selling prices in the past 3 months (up 2 points), and 19 percent reported
price increases (up 2 points). Seasonally adjusted, the net
percent of owners raising selling prices was a net 1 percent, down point.
Overall, there is little evidence that firms are able to raise prices
much. Seasonally adjusted, a net 23 percent plan price hikes (up 4 points), a
long way from the net 1 percent reporting higher actual prices in recent
months. “Wishes” for higher prices are
not granted in an economy with a lot of excess capacity.
Today’s report is based on the responses of 792
randomly sampled small businesses in NFIB’s membership, surveyed throughout the
month of February. Download the complete study at https://www.nfib.com/sbetindex.
*All net percentages seasonally adjusted unless
otherwise noted. The net percentage is the percent with a favorable response
less the percent of owners with an unfavorable response.