Small Business Optimism Crawls Forward

Date: January 14, 2014

No Sign of Real Recovery

January 14, 2014                   Eric Reller 202-314-2073 (media)
HOLD UNTIL 7:30 A.M. ET     Holly Wade 202-314-2022 (research)
WASHINGTON, January 14, 2014 – Small-business optimism ended the year slightly up from November at 93.9, but below the previous 3 mid-year readings of over 94 and 6 points below the pre-recession average, according to the National Federation of Independent Business’ (NFIB’s) latest index. On the positive front, reports of capital spending rose significantly in December, increasing by 9 points from November and job creation among NFIB firms was the best since February 2006. Hopefully, the promising NFIB job creation and capital spending numbers for December forecast a better 2014.
“While there has been no sign that a real recovery has begun, we can be encouraged that the economy is at least crawling forward and not heading in reverse,” said NFIB chief economist Bill Dunkelberg. “Some segments of the economy are showing improvement (manufacturing, construction, professional services), but consumer spending, especially on services (70 percent of consumption), has lagged. Spending on items such as automobiles has certainly increased, however a corresponding rise in hiring has not yet materialized.

“Two monthly advances could be the start of a more positive trend,
but there are many threats to improvement, including the majority of
respondents feeling the current climate is not “a good time to expand
substantially” blaming the political climate, something that may not
improve in an election year. Obamacare will continue to generate issues
for small business owners as well as individual consumers. And the
national debt continues to rise with another fight to increase the debt
ceiling looming once again. The uncertainty that has contributed to our
slow recovery is clearly still present – making any advances shaky at

A review of the December indicators is as follows:
•    Labor Markets.
 Owners increased employment by an average of 0.24 workers in December,
the best reading since February 2006. Fourteen percent of the owners
reported adding an average of 3.4 workers per firm over the past few
months. Offsetting that, 10 percent reduced employment an average of 1.8
workers, producing the seasonally adjusted net gain of 0.24 workers per
firm overall.  The “difference” between these two measures is new job
Overall, it appears that owners
hired more workers on balance in December than their hiring plans
indicated in November, a favorable development.  Job openings maintained
its solid reading and job creation plans, though slipping a point, held
on to the improved levels observed in recent months, anticipating a
better job creation figure than reported in November and no
deterioration in the unemployment rate.

•    Capital Spending.
 The frequency of reported capital outlays over the past 6 months
surprisingly gained 9 percentage points in December, a remarkable
increase. Sixty-four percent reported outlays, the highest level since
early 2005. The surge in spending, especially on equipment and fixtures
and furniture, is certainly welcome and is hopefully not just an
end-of-year event for tax or other purposes. This level of spending is
more typical of a growing economy. 
•    Sales.
The net percent of all owners reporting higher nominal sales in the
past 3 months compared to the prior 3 months was unchanged at a negative
8 percent. Fourteen percent still cite weak sales as their top business
problem, but the lowest since June 2008. 
The net percent of
owners expecting higher real sales volumes rose a solid 5 points to 8
percent of all owners, restoring the September level of positive
expectations. Not seasonally adjusted, 26 percent expect improvement
over the next 3 months and 36 percent expect declines. Although
restoring the highest reading since early 2012, the gain still leaves
sales expectations in a relatively soft position.
•    Inflation.
The net percent of owners raising selling prices was a negative 1
percent, down 3 points. There is no evidence that firms are able to
raise prices, even though they may wish to as many firms are raising
compensation, but not passing those costs on to customers.
percent plan on raising average prices in the next few months, and 3
percent plan reductions. Clearly, reality is preventing firms from
implementing the price hikes they would like to have. A net 19 percent
plan price hikes, a long way from the net negative 1 percent reporting
higher actual prices in recent months.  
•    Earnings and Wages.
Earnings trends improved a bit in December, rising 2 points to a net
negative 22 percent. Not seasonally adjusted, 16 percent reported
profits higher quarter to quarter, and 37 percent reported profits
falling. If these were publically traded companies, the stock market
indicators would not look good. The economy remains bifurcated, large
firms doing fairly well, small businesses showing little growth or
•    Credit Markets. Four
percent of the owners reported that all their credit needs were not met,
unchanged and an historic low.  Thirty-two percent reported all credit
needs met, and a record high 55 percent explicitly said they did not
want a loan. Only 2 percent reported that financing was their top
business problem compared to 23 percent citing taxes, 20 percent citing
regulations and red tape and 14 percent citing weak sales.  
report is based on the responses of 635 randomly sampled small
businesses in NFIB’s membership, surveyed throughout the month of
December. Download the complete study at
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.
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 is the nation’s leading
small-business association. A nonprofit, nonpartisan organization
founded in 1943, NFIB represents the consensus views of its members in
Washington, D.C., and all 50 state capitals.

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