Small-business optimism picks up in NFIB survey

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The recent up-and-down "pattern" of small-business optimism continued in July. According to a National Federation of Independent Business Education Foundation news release, the Small-Business Optimism Index rose 1.3 points to 98.5, reclaiming about half of the previous month's decline.|ret||ret||tab|

"More small-business owners are optimistic that both real sales and the economy generally will improve by the fourth quarter," said Bill Dunkelberg, chief economist for the foundation. "How-ever, those hopes have not turned into increased capital outlays or much hiring, so for the immediate future, it looks like we'll continue bouncing along at just above zero growth."|ret||ret||tab|

Notable in the Small Business Economic Trends survey are these facts:|ret||ret||tab|

Hiring plans rose to the second strongest reading this year. However, this is still well off the record high set in December 1999. |ret||ret||tab|

A surprisingly high number of firms reported that finding qualified labor, skilled or unskilled, was the most important problem faced by their firm. Also, a quarter of firms reported hard-to-fill job openings the lowest reading since 1997 but historically strong. |ret||ret||tab|

Twenty-nine percent reported in-creasing labor compensation, 5 points below the record set in February. Only 6 percent cited labor costs as their No. 1 business concern. |ret||ret||tab|

Fewer firms only 7 percent reported raising average selling prices in July. The 10-year peak is 19 percent, reached in June 2000. |ret||ret||tab|

Both actual capital spending and future plans for capital spending declined. The high-water mark for this figure was December 1998.|ret||ret||tab|

Taxes won the balloting for most important problem facing small business with 21 percent of the vote, posting a large margin over the availability of qualified labor with 16 percent. In third place was poor sales with 14 percent. Inflation is the all-time winner, once in the early 1970s attracting 42 percent of the votes as the No. 1 problem. |ret||ret||tab|

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Sales|ret||ret||tab|

Reports of sales declines rebounded from a seasonally adjusted record low net -14 percent in June to -2 percent in July. Roughly as many firms reported sales gains quarter over quarter as reported declines. Unadjusted, 51 percent expect real sales gains over the next 6 months (up 11 points) while 13 percent anticipate declines (down 10 points). This yields a net 14 percent of all firms, up 4 points and a good number for a weak economy.|ret||ret||tab|

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Earnings|ret||ret||tab|

Twenty-six percent reported that profits were rising (up 8 points), but 27 percent reported that earnings weakened (down 17 points). Among those reporting lower earnings, 50 percent cited weaker sales volumes as the cause.|ret||ret||tab|

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Prices|ret||ret||tab|

The net percent of firms reporting higher average selling prices fell to 7 percent of all firms, a 4-point decline from June's reading. This takes the CPI headline inflation forecast down to 2.7 percent. The frequency of planned price hikes fell 2 points to a seasonally adjusted net 17 percent of all firms. It is difficult to raise prices in a soft economy, in spite of the declines in profits that weakness produces.|ret||ret||tab|

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Employment and compensation|ret||ret||tab|

Jobs were lost as small business continued to shed labor. The process of paycheck destruction continued after a decade of job creation. The reduction in employment was small, averaging less than 0.1 employees per firm, seasonally adjusted. The percent of firms with at least one "hard to fill" job opening fell 2 points to 25 percent of all firms. Twenty-nine percent reported raising worker compensation over the past three months, unchanged from June and 5 points below the record high reached just four months ago. Plans to raise compensation fell 2 points to 13 percent of all firms, a level not seen since 1994. |ret||ret||tab|

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Credit conditions|ret||ret||tab|

The bulk of the borrowing firms had no credit market problems. A net 4 percent reported "harder" borrowing conditions (up 1 point). Thirty-seven percent reported all of their borrowing needs were met while 5 percent reported financing difficulties. The average interest rate paid on short-term loans fell 30 basis points to 8.8 percent.|ret||ret||tab|

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Inventories |ret||ret||tab|

The net percent of firms reporting inventory accumulation in June was -5 percent, the largest margin of reductions since 1993. This follows readings of 1, 0, 1, 1, -2, -4 and -2 in the preceding seven months. Small firms are reducing inventory, no panic, just a steady reduction in stocks. Plans to add to inventories faded further, falling to a net of 0 percent of all firms, NFIB reported.|ret||ret||tab|

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Capital outlays|ret||ret||tab|

More weakness appeared in capital spending plans, which fell another 3 points in frequency to 27 percent of all firms, well below the average for the past 12 months of 33 percent and the lowest reading since 1992. |ret||ret||tab|

Reports of actual outlays in the past six months dropped 2 points to 60 percent of all firms.[[In-content Ad]]