Negativity up among small-business owners

The latest index, released Sept. 12, was 95.9, the lowest reading recorded since March 2003. The latest figure is based on data for the month of August.

Eight of the 10 index components posted declines. The two areas that didn’t decline were the percentage of firms with unfilled job openings, and the percentage of small-business owners who were planning to create new jobs. In the survey, 25 percent of business owners reported one or more job openings, and 17 percent said they planned to increase employment.

The number of business owners who reported higher labor compensation costs was 25 percent in the index, and 12 percent of the surveyed business owners cited the availability of qualified labor as their top business concern. Of the 55 percent of owners who hired or tried to hire in the past few months, 84 percent reported few or no qualified applicants for their open positions.

“That’s a tight labor market,” said NFIB Chief Economist William Dunkelberg, who conducted the study, in a news release.

The credit factor

Also in the index, 46 percent of the owners surveyed reported regular borrowing activity. Owner reports of increased difficulty in arranging financing edged up one point to a net 8 percent. That’s the highest percentage since 2000 and a sign that monetary policy continues to impact small businesses.

Still, only 4 percent cited the cost and availability of credit as their main problem, far from the record 37 percent in 1982.

“Credit has become more expensive. It’s significant that more owners want it and a higher percentage of owners are having a tougher time getting it,” Dunkelberg said. “Owners expect the coming months to bring increased borrowing difficulties.”

Sales prices, gains

Recent trends in selling prices did not change from the prior month. The percentage of firms raising average selling prices only fell a point to 22 percent (net of those cutting prices). And, the percentage of owners planning further price hikes decreased just one point, falling to 29 percent.

Weaker sales gains, fewer price hikes and rising labor costs combined to reduce earnings in the past three months (compared to the previous three months). A net 25 percent of all owners reported raising employee compensation compared to 22 percent who raised selling prices, a 3 point gap in passing on higher labor costs to customers.

Profits were further weakened as the net percent of firms reporting gains fell a point to 2 percent.

Of the 22 percent reporting higher earnings, nearly six in 10 cited stronger sales – down a point – and 5 percent each credited higher selling prices and lower materials costs.

Increased expenses, liquidity

The percentage of business owners who reported lower earnings for the last three months dropped one point to 34 percent. Several factors were cited for the decrease: weaker sales (38 percent); more expensive labor (15 percent); more costly materials, particularly energy (18 percent); lower selling prices (12 percent); and higher insurance, financing and regulatory costs and taxes (3 percent each).

Liquidity is not evident in small firms’ investments. The frequency of reported capital outlays in the past six months gained a point to 62 percent, but has remained flat all year. The composition of spending barely changed: 45 percent bought new equipment, 26 percent acquired vehicles, 14 percent improved or expanded facilities, 14 percent purchased new fixtures and furniture, and 7 percent purchased new buildings or land for expansion.

The percentage of small-business owners who think it is a good time to expand facilities has decreased three points from July, with the percentage who plan to make capital expenditures in the next few months falling to 28 percent.

“Overall, the August NFIB survey signals a slowdown in the works,” Dunkelberg said. “Should August levels of optimism prevail, we could see growth slow to the low 2 percent range in the first quarter of 2007.”[[In-content Ad]]