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NFIB: Small-Business Owner Confidence Barely Budges

February 13, 2013, 07:04 AM
Filed Under: Association News

Small-business owner confidence continues to drag, according to the National Federation of Independent Business (NFIB) Small Business Optimism Index. The Index gained 0.9 points, rising to 88.9, failing to regain the losses caused by last month’s “fiscal cliff” scare. Expectations for improved business conditions increased by five points, but remain overwhelmingly low—negative 30 percent—the fourth lowest reading in survey history. Actual job creation and job creation plans improved nominally, but still not enough to keep up with population growth.

"The Optimism Index barely budged in January. The only good news is that it ‘budged’ up, not down. If small businesses were publicly traded companies, the stock market would be in shambles. While corporate profits are at record levels as a share of GDP, small businesses are still struggling to turn a profit,” said NFIB chief economist Bill Dunkelberg. “With the dismal news that our economy actually contracted in the fourth quarter of 2012, it isn’t any wonder that more small firms expect their real sales volumes to fall, few have plans to invest in new inventory, and hardly any owners are expanding or hiring. Owner pessimism is certainly not surprising in light of higher taxes, rising health insurance costs, increasing regulations and just plain uncertainty.”

Some other highlights of December’s Optimism Index include:

Capital Spending: The frequency of reported capital outlays over the past six months rose 3 points to 55 percent. Of those making expenditures, 39 percent of owners reported spending on new equipment (up 3 points), 21 percent acquired vehicles (up 3 points), and 12 percent improved or expanded facilities (down 1 point). Five percent acquired new buildings or land for expansion (down 1 point) and 11 percent spent money for new fixtures and furniture (unchanged). Overall, there was no sign that capital spending might be returning to levels more consistent with past recovery periods. Twenty-one percent of owners plan to make capital outlays in the next three to six months, rising 1 point from the month prior. Six percent characterized the current period as a good time to expand facilities (down 2 points), historically a very weak number. The net percent of owners expecting better business conditions in six months was a net negative 30 percent, 5 points better than December but still dangerously low—the fourth lowest reading in nearly 40 years.

Sales: Sales trends remain overwhelmingly negative for small employers, with still more owners reporting declining sales than experiencing positive sales trends. The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months improved 1 point in January, landing at a negative nine percent. For context, the five-year high of a net four percent was reached in April of 2012. The low for this cycle was a net negative 34 percent in July of 2009. Nineteen (19) percent of owners still cite weak sales as their top business problem. Seasonally unadjusted, 19 percent of all owners reported higher sales (last three months compared to prior three months, up 1 point) and 32 percent reported lower sales (up 2 points). As consumer spending remains weak, so do the expectation for real sales among small employers. The net percent of owners expecting higher real sales volumes improved 1 point to a negative one percent of all owners (seasonally adjusted), still 13 points below the 2012 cycle high of net 12 percent reached in February 2012. Not seasonally adjusted, one quarter of owners surveyed expect improvement over the next three months (up 5 points) and 32 percent expect declines (down 8 points).  
Job Creation: Job creation was positive in January, but ever-so-slight. Overall, 11 percent of surveyed owners (unchanged) reported adding over the past few months, and nine percent reduced employment (down 4 points), seasonally adjusted. But the vast majority—the remaining 80 percent of owners—made no net change in employment. Forty-three (43) percent of owners surveyed hired or tried to hire in the last three months and 34 percent (79 percent of those trying to hire or hiring) reported few or no qualified applicants for open positions. Eighteen (18) percent of all owners reported job openings they could not fill in the current period; January is up 2 points from December, but still historically low.
Inventories: The pace of inventory reduction continued in January, with a net negative seven percent of all owners reporting growth in inventories (seasonally adjusted), 3 points better than December, but still more owners reducing stocks than adding to them. Unadjusted, nine percent reported growth in inventory stocks (down 2 points) and 22 percent reported inventory reductions (up 1 point). For all firms, a net negative one percent (down 1 point) reported stocks too low, historically a good level of satisfaction with inventory stocks. Plans to add to inventories remained weak at a net negative seven percent of all firms (seasonally adjusted), 3 points worse than December.  
The report is based on the responses of 2,033 randomly sampled small businesses in NFIB’s membership, surveyed throughout the month of January.

Download the complete study.

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