NFIB: small business sector remains in a "rut" and unable to find reasons to ramp up hiring

NFIB Small Business Report

We can certainly "hope for change"here,

but history warns against a lot of optimism.

 

Summary
January 2011 (released 1/11/2011)

Optimism Index

The Index of Small Business Optimism lost 0.6 points in December, dropping to 92.6, not a huge change but not the hope-for rebound that would signify more growth in the small business sector. Apparently, the "management change"in Washington and marginally better retail sales numbers were not enough to pump up spirits at the New Year celebrations. This marks the 36thmonth of recessionary levels. Only once in that period did the Index get above 93 (last month) and has been below 90 for 26 months. (Dec. 2010 reading 4.6 points greater than Dec. 2009 however it is 8.8 points lower than Dec. 2005)

Labor Markets

Thirteen (13) percent (seasonally adjusted) reported unfilled job openings, a four point improvement that anticipates a reduction in the unemployment rate in the coming months. Over the next three months, 10 percent plan to increase employment (up one point), and nine percent plan to reduce it (down three points), yielding a seasonally adjusted netsix percent of owners planning to create new jobs, a two point gain from December and the best reading in 27 months. Until sales picks up, there is nopressing reason to hire. The reduction in the payroll tax will add some impetus to hiring as most of that addition to take home pay will likely be spent.

Capital Spending

The frequency of reported capital outlays over the past six months fell four points to 47 percent of all firms, disappointing and only three points over the record low level. Eight percent characterized the current period as a good time to expand facilities (seasonally adjusted), down one point but six points better than earlier in the year and the third highestreading since the economy peaked in December 2007. A net nine percent expect business conditions to improve over the next six months, down seven points from November’s rather astonishing reading (the level of optimism we had been hoping for) but historically decent. It is the second best reading since the 4thquarter of 2009 when the economy was expanding rapidly. Apparently the future is looking brighter for more owners, although much will depend on what Congress does early in 2011.

Profits and Wages

Reports of positive earnings trends fell four points in December, registering a netnegative 34 percent. Still, far more owners report that earnings are deteriorating quarter on quarter than rising. Partof this is due to price cutting, which is fading in frequency as the economy continues to grow. Not seasonally adjusted, 14 percent reported profits higher (down one points), but 47 percent reported profits falling, a four point increase. For those reporting lower earnings compared to the previous three months, 55 percent cited weaker sales, four percent blamed rising labor costs, six percent higher materials costs, two percent higher insurance costs, two percent higher financing costs, and four percent blamed lower selling prices. Six percent blamed higher taxes and regulatory costs. Large firms may be posting great profits, but the trend on Main Street is not supportive of solid hiring and capital spending. Labor cost, materials costs, interest rates –not the problem. It is still weak sales.Seven percent reported reduced worker compensation and 11 percent reported gains. Seasonally adjusted, a neteight percent reported raising worker compensation, unchanged from November. Labor costs are not a problem for inflation yet but are not fading any longer.

Credit Markets

Overall, 91 percent reported that all their credit needs were met or that they were not interested in borrowing. Nine percent reported that not all of their credit needs were satisfied, and 50 percent said they did not want a loan, down three points. Thirty (30) percent of all owners reported borrowing on a regular basis, up two points from the record low.A net12 percent reported loans "harder to get"compared to their last attempt (asked of regular borrowers only), up one point from November. Reported and planned capital spending are still hovering around survey recordlow levels, but are showing reluctant improvement.

Commentary

It appears that the small business sector remains in a rut”, unable to find reasons (drained by a 2 plus year recession period) to ramp up hiring and capital spending. The top problem remains weak sales, spread over too many firms. With weak sales prospects, hiring or spending on capital projects have little likelihood of paying off and therefore willnot happen. Congress passed or tried to pass a ton of legislation that had little to do with helping the economy. It is no wonder that consumers and owners are in a canyon of pessimism, the recession took a huge economic toll and the leadership inspired fear, not confidence. With the small business sector on the sidelines, it is hard to get national growth above the 2 to 3 percent range and the economy will not enjoy the type of rebound experienced after 1982 when GDP grew eight percent for over a year.

NFIB: Few owners expect business conditions to improve, few expect real sales to rise...

NFIB Small Business Optimism Index 11/9/10

Well, not much has changed. The Index remains at recession levels where it has been for two years. Few owners expect business conditions to improve, few expect real sales to rise, more plan to cut inventories than to order more, and capital spending plans and actual expenditures remain at recession levels.

However, there are a few specks of good news. Firms appear to have stopped reducing employment, but few plan to create new jobs. Inventory levels are viewed as balanced, but more owners still continue to reduce stocks than build them and more plan cuts than additions.

Interest rates are low, yes, but there is little motivation to borrow even cheap money since there are few uses that promise a return on their investment. Most owners (75 percent) feel it is not a good time to expand their firms (20 percent are uncertain), 1 in 5 of them blame the uncertain political environment as the primary factor explaining their views. Complete Report

NFIB July Survey Results: Small business owners are not optimistic (Hey Geithner, Welcome to the Recovery)

US NFIB Survey

July Optimism Index -0.9 to 88.1

The National Federation of Independent Business Index of Small Business Optimism lost 0.9 points in July and reached 88.1 following a sharp decline in June. The Index has been below 93 every month since January 2008 (31 months), and below 90 for 24 of those months, all readings typical of a weak or recession-mired economy. Ninety percent of the decline this month resulted from deterioration in the outlook for business conditions in the next six months.

"The recovery in optimism that we are currently experiencing is very weak compared to recoveries after the 1982 and 1975 recessions," said Bill Dunkelberg, NFIB's chief economist. "The small business sector is not on a sustained positive trajectory, and with this half of the private sector missing in action, the economy's poor growth performance is not surprising."

Optimism Components Net % and Change from June
PLAN TO INCREASE EMPLOYMENT         2% +1
PLAN TO INCREASE CAP. OUTLAYS*    18% -1
PLAN TO INCREASE INVENTORIES         -4% -1
EXPECT ECONOMY TO IMPROVE         -15% -9
EXPECT HIGHER REAL SALES                -4% +1
CURRENT INVENTORY SATISFACTION    0% +1
CURRENT JOB OPENINGS*                      10% +1
EXPECTED CREDIT CONDITIONS         -14% -1
NOW A GOOD TIME TO EXPAND*             5% -1
EARNINGS TRENDS                                  -33% -1

* 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.

Employment

Average employment growth per firm turned negative in April of 2007 and remained negative for 11 of the 13 following quarterly (first month in each quarter) readings, ending with a negative 0.15 in July (seasonally adjusted). July actually is an improvement from recent months where average declines of workers per firm were negative 0.48 in May and negative 0.28 in June.

In July, 10 percent (seasonally adjusted) reported unfilled job openings, up one point from June but historically very weak. Over the next three months, 9 percent plan to increase employment (down one point), and 10 percent plan to reduce their workforce (up two points), yielding a seasonally adjusted net 2 percent of owners planning to create new jobs, up one point from June and positive for the third time in 22 months.

Capital Spending and Outlook

The frequency of reported capital outlays over the past six months fell one point to 45 percent of all firms, one point above the 35-year record low reached most recently in December 2009. The percent of owners planning to make capital expenditures over the next few months fell one point to 18 percent, two points above the 35-year record low. Five percent characterized the current period as a good time to expand facilities, down one point. But a net-negative 15 percent expect business conditions to improve over the next six months, down nine points from June and 23 points from May.

"Owners do not trust the economic policies in place or proposed, and they are distressed by global and national developments that make the future more uncertain," said Dunkelberg.

Sales and Inventories

The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months lost one point, falling to a net-negative 16 percent, 18 points better than June 2009 but indicative of very weak customer activity. Unadjusted, 26 percent of all owners reported higher sales (last three months compared to prior three months, up three points) while 33 percent reported lower sales (down two points). Widespread price cutting continued to contribute to reports of lower nominal sales.

The net percent of owners expecting real sales gains improved one point over June, rising to a net-negative 4 percent of all owners (seasonally adjusted), still quite dismal. Not seasonally adjusted, 26 percent expect improvement over the next three months, 28 percent expect declines.

A net-negative 19 percent of all owners reported gains in inventories (more firms cut stocks than added to them, seasonally adjusted), two points better than June but a very weak number. July 2010 is the 28th negative double-digit month in a row for inventory gains, and the 38th negative month in a row. Unadjusted, 10 percent reported gains in inventory stocks (unchanged), but 25 percent reported inventory reductions (down two points). Plans to add to inventories (on purpose) declined one point to negative 4 percent of all firms (seasonally adjusted).

Inflation

The weak economy continued to put downward pressure on prices. Twelve percent of owners (down one point) reported raising average selling prices, and 24 percent reported average price reductions (down three points). Seasonally adjusted, the net percent of owners raising prices was a negative 12 percent, a two point increase in the net percent raising prices. July is the 20th consecutive month in which more owners reported cutting average selling prices that raising them.

"With no pricing power and real sales volumes weak, profits are not able to recover," said Dunkelberg.

Earnings

Small business owners' reports of positive profit trends worsened by one point in July, registering at a net-negative 33 percent (29 points worse than the best expansion reading reached in 2005).

"Profits are important for the support of capital spending and expansion, so this trend does not signal much growth for the small business sector in coming months," said Dunkelberg. Not seasonally adjusted, 18 percent reported profits higher (up 2 points), but 45 percent reported profits falling (down 2 points).

Owners continued to hold the line on compensation, with 8 percent reporting reduced worker compensation, and 12 percent reporting gains. Seasonally adjusted, a net 3 percent reported raising worker compensation, only 5 points better than February's record low reading of negative 2 percent.

Credit

Regular borrowing gained three points in July as 32 percent reported accessing capital markets at least once a quarter, but still near record lows. A net 13 percent reported loans harder to get than in their last attempt, unchanged from June. However, overall 91 percent of the owners reported all their credit needs met or they did not want to borrow, up one point. Only 4 percent reported financing as their top business problem.

Grandpa:

NFIB members would appreciate a batch of the Kool-aid Geithner consumed as he penned his "Welcome to the Recovery" Op-Ed piece in the New York Times on August 2, 2010.

Small business start-ups lowest rate in over 20 years

By Emmeline Zhao (Wall Street Journal)

The activity of new entrepreneurs plunged in the first half of 2010, falling to the lowest rate in more than two decades as more workers found employment or were driven away from start-ups by a feeble economy.

Start-up activity fell to an average 3.7% in the first two quarters of this year, down from 7.6% in the first half of 2009 and 9.6% in the second half, according to a survey of about 3,000 job seekers by global outplacement and executive coaching firm Challenger, Gray and Christmas, Inc. Many of those surveyed are former managers and executives.

“It is difficult to pinpoint the exact reason behind the decline in start-up activity among former managers and executives,” Challenger Chief Executive John Challenger said in a statement Monday. “On one hand, it could be that the job market has improved to the point that many do not feel compelled to take the risk of going it alone. Then there is the fragility of the recovery and the uncertainty that comes with it. Many small business owners are increasingly pessimistic about business conditions and still find it difficult to get a loan.”

The 3.4% first-quarter start-up rate and the 3.9% in the second quarter mark the lowest first-half since Challenger started recording data in 1986. The highest half-year start-up rate was 21.5% in the first six months of 1989.

While the economy recovers but remains fragile, entrepreneurism drops as fewer job-seekers look to start their own businesses and secure employment. Those already self-employed are less confident about their outlooks — a small business optimism index fell to 92.2 in June from 89 in May, according to the National Federation of Independent Business.

The annual average rate of job seekers starting a business fell with the onset of the recession — from 8.1% in 2007 to 5.1% in 2008. The number of self-employed workers peaked at more than a seasonally adjusted 9.7 million in June 2007, just before the recession, but fell to almost 8.9 million in June 2010, according to the Bureau of Labor Statistics. The rate of new entrepreneurship dropped steadily through the first six months of 2010 from 9 million.

The Challenger survey shows an increase in new entrepreneurs in the third and fourth quarters of 2009 — 11.8% and 7.3%, respectively. The total number of self-employed workers jumped almost 3% to more than 9.1 million in December 2009 from just under 8.9 million that June.

Meanwhile, as fewer people looked to self-employment in the first half of 2010, the number of payroll workers increased by a seasonally adjusted 1.3 million between December 2009 and June 2010 in nonagricultural industries.