Small-business index points to rising inflation fears

Earlier this month, the index fell 2.2 points to 89.3, characterized by NFIB Chief Economist William Dunkelberg in a news release as a recession-level reading that’s the lowest the index has been since 1980.

“But the current low readings have not been accompanied by the declines in real spending and hiring as was the case in past recessions,” he said.  

The index showed a modest declinein employment in May on a seasonallyadjusted basis, with 6 percent of the owners polled increasing employment by an average of 4.7 workers, and 16 percent reducing employment by an average of 2.9 workers.

Among those firms hiring, 77 percent reported few or no qualified applicants for job openings, and a seasonally adjusted 15 percent reported unfilled job openings, down six points from the April index.

“That is an indication that the unemployment rate will rise,” Dunkelberg said. “Eight percent of owners reported the availability of qualified labor was their top business problem, much lower than last September (the Fed’s first economic warning and rate cut) when openings stood at 25 percent of all firms, and 17 percent reported the availability of qualified workers was their top business problem.” 

In the next three months, 16 percent of surveyed companies plan to create new jobs (down three points), and 8 percent are planning for work force reductions (up two points), yielding a seasonally adjusted net 2 percent of owners who are planning to create new jobs, down three points from April. Not seasonally adjusted, job creation plans were positive in all industry groups.

Economic conditions aren’t deterring companies from raising prices, according to the index. The net percentage of owners reporting higher average selling prices rose three points to 23 percent in May. The net percentage of companies planning to raise prices rose one point to 32 percent – not good news for those worried about inflation.

A bright spot in the index: For the ninth straight month since the Fed declared the existence of a credit crunch, no evidence of credit problems has appeared on Main Street. Regular borrowing activity was reported by 35 percent of the owners, down one point from April and typical of readings for the past 15 years.

“There is no evidence that there are cash flow problems that have increased dependence on credit from the banking system,” Dunkelberg said.