NFIB SMALL BUSINESS ECONOMIC TRENDS 2005 pdf

CAPITAL SPENDING The frequency of reported capital outlays over the past six months fell 1 point to 50 percent of all firms.. The net percent of owners expecting better business conditi

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NFIB S MALL B USINESS

William C Dunkelberg Holly Wade

May 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

Plans to Increase Employment 2% 0 *

Plans to Make Capital Outlays 21% -3 *

Plans to Increase Inventories -1% -2 *

Expect Economy to Improve -8% -3 *

Expect Real Sales Higher 5% -1 *

Current Inventory 1% 2 *

Current Job Openings 14% -1 *

xpected Credit Conditions -13% -4 *

Now a Good Time to Expand 4% -1 *

Earnings Trend -26% 6 *

Total Change -7 *

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 change

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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.

I N T HIS I SSUE

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 Profile 19

Economic Survey 20

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The Small Business Optimism Index fell 0.7 points in April to 91.2, not

much but still a disappointing outcome following the March decline After

last month’s larger decline, this month is more akin to an “after shock”

Thankfully, the labor market components did not decline further, although

net job creation weakened Also, fewer reported adverse profit trends and

reports of positive sales trends were still less frequent than reports of

quarterly declines, but the best reading since December 2007, the peak of

the last expansion

LABOR MARKETS

Fourteen (14) percent (seasonally adjusted) reported unfilled job openings

(down 1 point) Over the next three months, 16 percent plan to increase

employment (down 2 points), and 6 percent plan to reduce their workforce

(unchanged), yielding a seasonally adjusted net 2 percent of owners

planning to create new jobs, unchanged from March but a very weak

reading

CAPITAL SPENDING

The frequency of reported capital outlays over the past six months fell 1

point to 50 percent of all firms Of those making expenditures, 35 percent

reported spending on new equipment (up 1 point), 18 percent acquired

vehicles (up 1 point), and 11 percent improved or expanded facilities

(down 1 point) Three percent acquired new buildings or land for

expansion (down 1 point) and 11 percent spent money for new fixtures and

furniture (unchanged) Capital spending remains historically low in spite

of very low interest rates and all sorts of expensing incentives The

problem is that “cheaper” equipment is still no bargain if you can’t use it

The percent of owners planning capital outlays in the next three to six

months fell 3 points to 21 percent, a recession level reading Money is

cheap, but most owners are not interested in a loan to finance equipment

they don’t need Prospects are still uncertain enough to discourage any but

the most profitable and promising investments Four percent characterized

the current period as a good time to expand facilities (seasonally adjusted),

down 1 point from March and 4 points lower than January The net

percent of owners expecting better business conditions in 6 months slipped

another 3 points to negative 8 percent, 18 percentage points worse than in

January Uncertainty is the enemy, and there is plenty of it to convince

owners to “keep their powder dry” Apparently consumers feel much the

same way, as more customers spending more money would overcome the

reluctance of owners to hire and make capital outlays One in four still cite

“weak sales” as their top business problem

This survey was conducted in April 2011 A sample of 10,799 small-business owners/members was drawn.

One thousand nine hundred ten (1985) usable responses were received – a response rate of 18 percent.

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INVENTORIES AND SALES

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

nominal sales over the past three months did improve by 7 percentage point to a net negative 5 percent, the best reading in 40 months

But consumer sentiment is stuck in the mud as gas and food prices

continue to rise, and many consumers still suffer from heavy debt and mortgage payments which depress their spending The net percent of owners expecting higher real sales fell 1 point to a net 5 percent of all owners (seasonally adjusted), 8 points below January’s reading This is bad news for hiring and inventory investment A net negative 9 percent of all owners reported growth in inventories (seasonally adjusted), a 2 point deterioration Small business owners continued to liquidate inventories but

at one of the lowest frequency in 35 months For all firms, a net 1 percent (up 2 points) reported stocks too low, historically one of the most

“satisfied” readings in survey history Owners are happy with current stocks, but that is relative to expected sales which are not strong Plans to add to inventories lost 2 points, falling to a net negative 1 percent of all firms (seasonally adjusted), consistent with the strong reading on

satisfaction with current stocks

INFLATION

In April, the percentage rose to 12 percent, a gain of 36 percentage points from the low reading in 2009 and, a more recent perspective, 23 points higher than last September A net 24 percent planned hikes in average selling prices in April The “fire sale” is over and selling prices are now on the rise, giving a boost to profit trends in April (although much more is needed)

PROFITS AND WAGES

Reports of positive earnings trends improved 6 points in April, registering

a net negative 26 percent, still an ugly number but sales trends improved and fewer owners cut selling prices, both positive for the bottom line.Seasonally adjusted, a net 9 percent reported raising worker compensation,

up 2 points A seasonally adjusted 7 percent plan to raise compensation, down 2 points

CREDIT MARKETS

Overall, 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 Three percent reported financing as their

#1 business problem, so “credit supply” is not a problem for the

overwhelming majority For the banks with money to lend, “credit

demand” is weak The historically high percent of owners who cite weak sales means that, for many owners, investments in new equipment or new workers are not likely to “pay back” This is a major cause for the lack of credit demand observed in financial markets along with the deficiency in housing starts, a million units below “normal” Thirty-two percent of all owners reported borrowing on a regular basis, 4 points above the record low

S UMMARY

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The “get up and go” usually present in the small business sector after a

recession “got up and went” somewhere For the small business sector, this

is the worst recovery on record The recovery in the small business

indicators looks especially anemic in comparison to the recovery after the

1980-82 recession period, the era with a depth most comparable to our most

recent experience The explanation for this is murky and complex, driven by

the “seeds of destruction” planted in the 2003-07 expansion When stock

market bubbles burst, winners and losers are quickly identified and the

economy moves on as the redistribution in wealth is efficiently imposed by

the market This time around, the process of declaring winners and losers is

impeded by the complications of mortgage finance concocted by the

financial market and the efforts of the government to prevent the

redistribution required

Houses are more widely held than stocks and the crash has impacted many

more people and reached far down the income distribution, impacting

attitudes as well as the ability to spend Savers’ incomes have been impaired

by the Fed’s low rate policies The over-supply of houses, business facilities

and inventory weigh heavily on new construction and until recently,

production Although much lower, the ratio of consumer debt to income is

still high, families not actually in foreclosure are still saddled with high

mortgage payments

And then there’s Washington Enough said, not enough room to detail the

detrimental impact of the uncertainty created by “leadership” there

Unemployment remains high because in the boom, employment was too

high and especially in construction where excessive levels of employees

created such high output that it impeded their re-employment in the

recovery The much vaunted “risk managers” at financial institutions failed,

and their institutions would have as well had they not been “bailed out”

Owners report that inventories are now in balance with expected sales, but

these expectations are muted, providing little reason to hire more workers

Capital spending remains low because the prospects of generating the

additional sales needed to pay off loans used to finance expansion are not

good Selling prices are rising sharply not because costs are rising but

because the “fire sale” needed to bring inventories and excess retail capacity

into balance is about over New construction and services are labor

intensive and dominated by small firms Spending must recover here to get

employment up and running Maybe after consumers are through buying

cars they will get their nails done

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(Seasonally Adjusted 1986=100)

-40 -20 0 20 40 60 80

0 10 20 30

January Quarter 1974 to April Quarter 2011

(Seasonally Adjusted)

SMALL BUSINESS OUTLOOK

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SMALL BUSINESS OUTLOOK (CONTINUED)

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

MOST IMPORTANT REASON FOR EXPANSION OUTLOOK

Reason Percent by Expansion Outlook

OUTLOOK FOR GENERAL BUSINESS CONDITIONS

Net Percent (“Better” Minus “Worse”) Six Months From Now

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January 1974 to April 2011 (Seasonally Adjusted)

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ACTUAL PRICE CHANGES Net Percent (“Higher” Minus “Lower”) Compared to Three Months Ago

PRICES Actual Last Three Months and Planned Next Three Months

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SMALL BUSINESS EMPLOYMENT

QUALIFIED APPLICANTS FOR JOB OPENINGS

Percent Few or No Qualified Applicants

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SMALL BUSINESS EMPLOYMENT (CONTINUED)

HIRING PLANS Net Percent (“Increase” Minus “Decrease”) in the Next Three Months

January 1986 to April 2011 (Seasonally Adjusted)

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SMALL BUSINESS COMPENSATION (CONTINUED)

ACTUAL COMPENSATION CHANGES Net Percent (“Increase” Minus “Decrease”) During Last Three Months

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* For the population borrowing at least once every three months.

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SMALL BUSINESS CREDIT CONDITIONS (CONTINUED)

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SMALL BUSINESS CREDIT CONDITIONS (CONTINUED)

Net Percent (“Higher” Minus “Lower”) Compared to Three Months Ago

*Borrowing at Least Once Every Three Months.

ACTUAL INTEREST RATE PAID ON SHORT-TERM LOANS BY BORROWERS

Average Interest Rate Paid

15

74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

Actual Planned

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SMALL BUSINESS INVENTORIES (CONTINUED)

ACTUAL INVENTORY CHANGES Net Percent (“Increase” Minus “Decrease”) During Last Three Months

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CAPITAL EXPENDITURES Actual Last Six Months and Planned Next Three Months

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SMALL BUSINESS CAPITAL OUTLAYS (CONTINUED)

AMOUNT OF CAPITAL EXPENDITURES MADE

Percent Distribution of Per Firm Expenditures

During the Last Six Months

Amount Current One Year Ago Two Years Ago

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SINGLE MOST IMPORTANT PROBLEM

April 2011

Problem Current

One Year Ago

Survey High

Survey Low

Govt Reqs & Red Tape 17 15 27 4

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Actual Number of Firms

NFIB OWNER/MEMBERS PARTICIPATING

IN ECONOMIC SURVEY Industry of Small Business

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Do you think the next three months will be a good time

for small business to expand substantially? Why? 4

About the economy in general, do you think that six

months from now general business conditions will be

better than they are now, about the same, or worse? 5

Were your net earnings or “income” (after taxes) from your

business during the last calendar quarter higher, lower, or

about the same as they were for the quarter before? 6

If higher or lower, what is the most important reason? 6

During the last calendar quarter, was your dollar sales

volume higher, lower, or about the same as it was for

the quarter before? 7

Overall, what do you expect to happen to real volume

(number of units) of goods and/or services that you will

sell during the next three months? 7

How are your average selling prices compared to

three months ago? 8

In the next three months, do you plan to change the

average selling prices of your goods and/or services? 8

During the last three months, did the total number of employees

in your firm increase, decrease, or stay about the same? 9

If you have filled or attempted to fill any job openings

in the past three months, how many qualified applicants

were there for the position(s)? 9

Do you have any job openings that you are not able

to fill right now? 10

In the next three months, do you expect to increase or

decrease the total number of people working for you? 10

Over the past three months, did you change the average

employee compensation? 11

Do you plan to change average employee compensation

during the next three months? 11

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S MALL B USINESS S URVEY Q UESTIONS P AGE IN R EPORT

Are…loans easier or harder to get than they were

three months ago? .12 During the last three months, was your firm able to

satisfy its borrowing needs? .13

Do you expect to find it easier or harder to obtain your

required financing during the next three months? 13

If you borrow money regularly (at least once every three

months) as part of your business activity, how does the

rate of interest payable on your most recent loan compare

with that paid three months ago? .14

If you borrowed within the last three months for business

purposes, and the loan maturity (pay back period) was 1

year or less, what interest rate did you pay? 14 During the last three months, did you increase or decrease

your inventories? 15

At the present time, do you feel your inventories are too

large, about right, or inadequate? .15 Looking ahead to the next three months to six months,

do you expect, on balance, to add to your inventories,

keep them about the same, or decrease them? 15 During the last six months, has your firm made any capital

expenditures to improve or purchase equipment, buildings,

or land? .16

If [your firm made any capital expenditures], what was

the total cost of all these projects? 17 Looking ahead to the next three to six months, do you

expect to make any capital expenditures for plant

and/or physical equipment? .17 What is the single most important problem facing your

business today? 18 Please classify your major business activity, using one

of the categories of example below 19 How many employees do you have full and part-time,

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