SMALL BUSINESS OPTIMISM INDEX COMPONENTS Index Component Seasonally Adjusted Level Change from Last Month Contribution to Index Change Plans to Increase Employment 1% - 4 * Plans to Make Capital Outlays 20% 1 * Plans to Increase Inventories - 4% 1 * Expect Economy to Improve - 35% 0 * Expect Real Sales Higher - 2% 3 * Current Inventory 0% 2 * Current Job Openings 16% - 1 * Expected Credit Conditions -11% - 1 * Now a Good Time to Expand 8% 2 * Earnings Trends -29% 3 * Total Change 6 * (Column 1 is the current reading; column 2 is the change from the prior month; column 3 the percent of the total change accounted for by each component; * is under 1 percent and not a meaningful calculation) Based on a Survey of Small and Independent Business Owners NFIB SMALL BUSINESS ECONOMIC TRENDS NFIB SMALL BUSINESS ECONOMIC TRENDS William C. Dunkelberg Holly Wad January 2013
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Small Business Economic Trends - January 2013January 2013 SBET_CVR_2012.indd 1-2 3/30/2012 11:27:49 AM NFIB SMALL BUSINESS ECONOMIC TRENDS _____ NFIB Research Foundation has collected
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SMALL BUSINESS OPTIMISM INDEX COMPONENTS
Index ComponentSeasonally
Adjusted LevelChange from Last Month
Contribution to Index Change
Plans to Increase Employment 1% - 4 *Plans to Make Capital Outlays 20% 1 *Plans to Increase Inventories - 4% 1 *Expect Economy to Improve - 35% 0 * Expect Real Sales Higher - 2% 3 *Current Inventory 0% 2 *Current Job Openings 16% - 1 *Expected Credit Conditions -11% - 1 *Now a Good Time to Expand 8% 2 *Earnings Trends -29% 3 *Total Change 6 *(Column 1 is the current reading; column 2 is the change from the prior month; column 3 the percent of the total change accounted for by each component; * is under 1 percent and not a meaningful calculation)
1201 “F” Street NW
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Based on a Survey of Small and Independent Business Owners
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William C. DunkelbergHolly Wade
January 2013
SBET_CVR_2012.indd 1-2SBET_CVR_2012.indd 1-2 3/30/2012 11:27:49 AM3/30/2012 11:27:49 AM
SUMMARY OPTIMISM INDEX The Index gained half a point, rising to 88.0, the second lowest reading since March 2010. This is better than the 81 low reading in the Great Recession, but hardly characteristic of a recovery. Were it not for population growth supporting consumption and net new small business creation, we would have no growth at all. LABOR MARKETS Overall, owners reported a tiny increase in job creation, adding an average of 0.03 workers per firm, better than November’s -0.04 reading, but both roughly “0”. For the entire sample, 11 percent of the owners (up 1 point) reported adding an average of 2.9 workers per firm over the past few months, and 13 percent reduced employment (up 2 points) an average of 1.9 workers (seasonally adjusted). The remaining 76 percent of owners made no net change in employment. Forty-one percent of the owners hired or tried to hire in the last three months and 33 percent (80 percent of those trying to hire or hiring) reported few or no qualified applicants for open positions. The percent of owners reporting hard to fill job openings fell 1 point to 16 percent of all owners. This measure is highly correlated with the unemployment rate, so the NFIB survey anticipated little or no improvement in the rate. Job creation plans weakened substantially, falling 4 points to a net 1 percent planning to increase employment. Overall, the NFIB data indicate that job creation was not much different in December, positive but not strong. INVENTORIES AND SALES The pace of inventory reduction continued, with a net negative 10 percent of all owners reporting growth in inventories (seasonally adjusted), unchanged from November. A net 0 percent (up 2 points) reported stocks too low, historically a high level of satisfaction with stocks. But, with rather dismal sales expectations, plans to add to inventories remained weak at a net negative 4 percent of all firms (seasonally adjusted), only 1 point better than November. The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past 3 months improved 5 points to a negative 10 percent, a step in the right direction, but a small one. The low for this cycle was a net negative 34 percent (July 2009) reporting quarter over quarter gains. Nineteen (19) percent still cite weak sales as their top business problem, historically high, but down from the record 34 percent reading last reached in March 2010. The net percent of owners expecting higher real sales volumes rose 3 points to a negative 2 percent of all owners (seasonally adjusted), 14 points below the 2012 high of net 12 percent reached in February. Not seasonally adjusted, 20 percent expect improvement over the next 3 months (up 1 point) and 40 percent expect declines (down 3 points).
This survey was conducted in December 2012. A sample of 3,938 small-business owners/members was drawn. Six hundred forty-eight (648) usable responses were received – a response rate of 16 percent.
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CAPITAL SPENDING
The frequency of reported capital outlays over the past 6 months fell 1 point to 52 percent, still in “maintenance mode”. Nineteen (19) percent reported “poor sales” as their top business problem, down 4 points as reported sales trends improved 5 points, but still remained negative. The percent of owners planning capital outlays in the next 3 to 6 months rose 1 point to 20 percent. Eight percent characterized the current period as a good time to expand facilities (up 2 points), historically a very weak number. Overall, not a good environment for investment spending, but at least owners now know their marginal tax rates and can determine “after-tax returns” with more certainty.
INFLATION
Sixteen (16) percent of the NFIB owners reported raising their average selling prices in the past 3 months (up 1 point), and 17 percent reported price reductions (unchanged)). Seasonally adjusted, the net percent of owners raising selling prices was 0 percent, unchanged. With sluggish consumer spending, there is little opportunity to raise prices and make it stick. Twenty-two (22) percent plan on raising average prices in the next few months (up 1 point), 3 percent plan reductions (down 1 point). Seasonally adjusted, a net 16 percent plan price hikes, unchanged. It appears that the Federal Reserve’s forecast (hope) for continued low inflation is a reality on Main Street.
EARNINGS AND WAGES
Reports of positive earnings trends improved 3 points in December, rising to a net negative 29 percent, a dismal reading. Four percent reported reduced worker compensation and 13 percent reported raising compensation, yielding a seasonally adjusted net 13 percent reporting higher worker compensation (up 6 points). A net seasonally adjusted 5 percent plan to raise compensation in the coming months, up 1 point from November. These compensation increases are not being passed on to consumers through higher selling prices, which in part explains the poor profit performance.
CREDIT MARKETS Six percent of the owners reported that all their credit needs were not met, unchanged from November. Twenty-nine (29) percent reported all credit needs met, and 52 percent explicitly said they did not want a loan. Only 1 percent reported that financing was their top business problem, tied for the lowest reading in survey history, compared to 23 percent citing taxes, 19 percent citing weak sales and 21 percent citing regulations and red tape. Twenty-nine (29) percent of all owners reported borrowing on a regular basis, down 1 point from November. A net 9 percent reported loans “harder to get” compared to their last attempt (asked of regular borrowers only), unchanged from November. A record low 1 percent of owners reported financing as their top business problem and a net negative 2 percent (seasonally adjusted) reported higher interest rates on their most recent loan. Interest rates are not rising.
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COMMENTARY December was more of the same, uncertainty right up to the last minutes of 2012 and then over the cliff, at least for a few hours. Then something was cobbled together, cans were kicked, taxes went up. What a way to run a business. It’s like the Greek Railroad (ok, the entire Greek government), revenues are far short of labor costs so it borrows money each year to keep operating, building up debt until lenders will no longer pretend to believe that the debt can ever be repaid. Governments have turned into “consols,” no real maturity at which the debt will actually be repaid, just pay the ever increasing cost of servicing the debt until that is so big, they can’t operate any more. The current Index value of 88 is a recession level reading. There isn’t much else to say beyond that. Inventory demand fell, job creation plans weakened, both from levels that were already in the hole. Capital spending remains weak. Seventy percent of the owners characterize the current period as a bad time to expand; one in four of them cite political uncertainty as the top reason. This “uncertainty” is likely to be a headline player for at least the first half of 2013. As the year progresses, those looking for some meaningful progress on the deficit are likely to be disappointed. Spending will not be cut in any substantial way. Many new “taxes” will be imposed. The Federal Reserve will keep financing the deficit, continually expanding its portfolio. Eventually the Federal Reserve will be able to declare victory (unemployment rate at 6.5%) even if its policies are benign or even mildly counterproductive. The private economy will take care of that in spite of all the impediments government puts in its way. But it could be so much better with some intelligent management. There will be a few bright spots; housing will recover, driven by demographic necessity (and some weather). That’s a small business industry. Energy will continue to generate jobs. Creating new wells requires all types of labor. However, once drilled, not much labor is required to keep the gas and oil flowing. But cheap oil and gas will create a demand for retrofitting and attract new business that will need new plant and equipment. Car sales will be solid in 2013 as well. But overall, economic policy will be restrictive. There is no way we can avoid “going over the cliff” in some form or another. Spending must slow and taxes will rise. New income tax rates are now set, but there are many more “hidden” taxes. There will be reductions in spending somewhere, and that’s a reduction in incomes for some workers and firms. Whatever the resolution of the “cliff”, it will not provide a stimulus unless it somehow turns out to be a very sensible bargain which makes consumers and owners more optimistic about the future. Health care costs are rising as well. Minimum wages are rising, impeding job creation. Our trading partners are weaker, reducing export demand. Consumers still have a debt hangover from the party. All this “sludge” on the road will reduce the speed of economic growth.
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t OVERVIEW - SMALL BUSINESS OPTIMISM
OPTIMISM INDEX Based on Ten Survey Indicators
(Seasonally Adjusted 1986=100)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec2007 98.9 98.2 97.3 96.8 97.2 96.0 97.6 96.3 97.3 96.2 94.4 94.6
NFIB OWNER/MEMBERS PARTICIPATING IN ECONOMIC SURVEY
Number of Full and Part-Time Employees
0
5
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25
Perc
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5
10
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20
25
30
35
Perc
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SMALL BUSINESS SURVEY QUESTIONS PAGE IN REPORT
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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SMALL BUSINESS SURVEY QUESTIONS PAGE IN REPORT
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, including yourself? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19