NFIB Small Business Trends October

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    NFIB SMALL BUSINESS

    ECONOMIC TRENDS

    NFIB SMALL BUSINESS

    ECONOMIC TRENDS

    William C. DunkelbergHolly Wade

    October 2011

    S M A L L B U S I N E S S O P T I M I S M I N D E X C O M P O N E N T S

    noitubirtnoCmorFegnahCyllanosaeS

    egnahCxednIhtnoMtsaLleveLdetsujdAtnenopmoCxednI

    Plans to Increase Employment 4% -1 *

    Plans to Make Capital Outlays 20% -1 *

    Plans to Increase Inventories -2% 3 *

    Expect Economy to Improve -22% 4 *

    Expect Real Sales Higher -6% 6 *Current Inventory -1% -2 *

    1-%41sgninepOboJtnerruC *

    xpected Credit Conditions -12% 1 *

    Now a Good Time to Expand 6% 1 *

    *1-%72-dnerTsgninraE

    9egnahClatoT *

    Based on a Survey of Small and Independent Business Owners

    Column 1 is the current reading; column 2 is the change from the prior month; column 3 the percent of the total changeaccounted for by each component; * is under 1 percent and not a meaningful calculation.

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    The NFIB Research Foundation has collected

    Small Business Economic Trends Data with Quar-terly surveys since 1973 and monthly surveys since

    1986. The sample is drawn from the membership

    files of the National Federation of Independent

    Business (NFIB). Each was mailed a question-

    naire and one reminder. Subscriptions for twelve

    monthly SBET issues are $250. Historical and

    unadjusted data are available, along with a copy

    of the questionnaire, from the NFIB Research

    Foundation. You may reproduce Small Business

    Economic Trends items if you cite the publica-tion name and date and note it is a copyright of

    the NFIB Research Foundation. NFIB Research

    Foundation. ISBS #0940791-24-2. Chief Econo-

    mist William C. Dunkelberg and Policy Analyst

    Holly Wade are responsible for the report.

    NFIB SMALL BUSINESS

    ECONOMIC TRENDS

    IN THIS ISSUE

    Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

    Commentary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

    Optimism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

    Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

    Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

    Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

    Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

    Employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

    Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 10

    Credit Conditions . . . . . . . . . . . . . . . . . . . . . . . 12

    Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

    Capital Outlays. . . . . . . . . . . . . . . . . . . . . . . . . . 16

    Most Important Problem . . . . . . . . . . . . . . . . 18

    Survey Prole . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

    Economic Survey . . . . . . . . . . . . . . . . . . . . . . . . 20

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    SUMMARY

    OPTIMISM INDEX

    The Index of Small Business Optimism gained 0.8 points ending a six

    month decline, but about the only good thing to say about it is that the

    Index didnt go down. The net percent of owners expecting real sales to

    improve became less negative by 6 points, rising to a negative 6 percent.

    The net percent of owners expecting better business conditions in six

    months rose 4 points to a negative 22 percent, not exactly a euphoric

    development.

    LABOR MARKETS

    September was another bad job creation month. Fourteen (14) percent

    (seasonally adjusted) reported unfilled job openings, down 1 point. Over

    the next three months, 11 percent plan to increase employment

    (unchanged), and 12 percent plan to reduce their workforce (unchanged),yielding a net seasonally adjusted 4 percent of owners planning to create

    new jobs, a 1 point loss from August. In a normal expansion, this Index

    component would have double digit readings.

    CAPITAL SPENDING

    The frequency of reported capital outlays over the past six months fell 2

    points to 50 percent of all firms where it has been stalled for several years.

    The record low of 45 percent was reached in July 2010. The percent of

    owners planning capital outlays in the next three to six months fell 1 pointto 20 percent, a recession level reading that has typified the recovery to

    date. Money is available, but most owners are not interested in a loan to

    finance the purchase of equipment they dont need. Six percent

    characterized the current period as a good time to expand facilities

    (seasonally adjusted), up 1 point but 2 points lower than January. The net

    percent of owners expecting better business conditions in six months was a

    negative 22 percent, up 4 points from August, but 32 percentage points

    lower than January.

    INVENTORIES AND SALES

    The net percent of all owners (seasonally adjusted) reporting higher

    nominal sales over the past three months lost 1 point, falling to a net

    negative 10 percent, more firms with sales trending down than up.

    The net percent of owners expecting higher real sales gained 6 points to a

    net negative 6 percent of all owners (seasonally adjusted), 19 points below

    Januarys reading but 6 points better than August. A net negative 11 percent

    of all owners reported growth in inventories (seasonally adjusted), 2 points

    worse than the August reading. For all firms, a net negative 1 percent(down 2 points) reported stocks too low. Stocks are not excessive, but with

    pessimistic sales expectations, there is no need to order more of anything.

    Plans to add to inventories gained 3 points, to a net negative 2 percent of

    all firms (seasonally adjusted), so more firms still plan reductions than plan

    additions.

    This survey was conducted in September 2011. A sample of 3,938 small-business owners/members was drawn.

    Seven hundred twenty-nine (729) usable responses were received a response rate of 19 percent.

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    INFLATION

    Seventeen (17) percent of the NFIB owners reported raising their average

    selling prices in the past three months (down 2 points), and 22 percent

    reported price reductions (up 3 points). Seasonally adjusted, the net

    percent raising selling prices was 6 percent, up 5 points. The continued

    weakness in sales trends has blunted small businesss ability to raise prices

    after two years of price cutting to liquidate excess inventories, but there is

    still some pressure on prices as some firms are making price hikes stick.

    Seventeen (17) percent plan on raising average prices in the next few

    months, 4 percent plan reductions. Seasonally adjusted, a net 14 percent

    plan price hikes, down 2 points.

    EARNINGS AND WAGES

    Reports of positive earnings trends were 1 point worse in September at a

    net negative 27 percent of all owners, not a pretty picture, but still one of

    the best readings in years. Not seasonally adjusted, 17 percent reported

    profits higher (down 3 points), and 40 percent reported profits falling

    (unchanged). Corporate profits are at a record high level as a share of

    GDP, but the story is very different on Main Street. Compensation costs

    are rising, but not at a rapid rate. Six percent reported reduced worker

    compensation and 14 percent reported gains yielding a seasonally adjusted

    net 8 percent reporting higher worker compensation, a 1 point decline. Anet seasonally adjusted 7 percent plan to raise compensation in the coming

    months, unchanged from August.

    CREDIT MARKETS

    Three percent reported financing as their #1 business problem. So, for the

    overwhelming majority, credit supply is not a problem. Ninety-two (92)

    percent reported that all their credit needs were met or that they were not

    interested in borrowing. Eight percent reported that not all of their credit

    needs were satisfied (the record low is 4 percent), and 51 percent said they

    did not want a loan (12 percent did not answer the question, presumably

    uninterested in borrowing as well). The net percent of owners expecting

    credit conditions to ease in the coming months was a seasonally adjusted

    negative 12 percent, a 1 point improvement over August. Owners are still

    not overly confident that financial markets will be prepared to meet their

    credit needs and, for most, it seems like borrowing issues are irrelevant.

    Thirty-one (31) percent of all owners reported borrowing on a regular

    basis, down 1 point and only 3 points above the record low. A net 10

    percent reported loans harder to get compared to their last attempt (asked

    of regular borrowers only), down 3 points. The weak recovery provides

    little incentive for borrowing to support expansion or buy new equipment,

    even if interest rates are low. Five percent of owners reported higher

    interest rates on their most recent loan, while 3 percent reported getting a

    lower rate.

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    COMMENTARY

    After a strong vote of no confidence in the ef