William C. Dunkelberg Holly Wade SMALL BUSINESS OPTIMISM INDEX COMPONENTS

Transcription

1 NFIB Small Business Economic Trends William C. Dunkelberg Holly Wade January 21 Based on a Survey of Small and Independent Business Owners SMALL BUSINESS OPTIMISM INDEX COMPONENTS Seasonally Change From Contribution Index Component Adjusted Level Last Month Index Change Plans to Increase Employment -2% 1 * Plans to Make Capital Outlays 18% 2 * Plans to Increase Inventories -8% -5 * Expect Economy to Improve 2% -1 * Expect Real Sales Higher -1% 1 * Current Inventory -4% -2 * Current Job Openings 1% 2 * Expected Credit Conditions -15% * Now a Good Time to Expand 7% -1 * Earnings Trends -43% * Total Change -3 * Column 1is 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.

2 NFIB Small Business Economic Trends The NFIB Research Foundation has collected Small Business Economic Trends Data with Quarterly surveys since 1973 and monthly surveys since The sample is drawn from the membership files of the National Federation of Independent Business (NFIB). Each was mailed a questionnaire and one reminder. Subscriptions for twelve monthly SBET issues are $25. 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 publication name and date and note it is a copyright of the NFIB Research Foundation. NFIB Research Foundation. ISBS # Chief Economist William C. Dunkelberg and Policy Analyst Holly Wade are responsible for the report. In Th i s Issue Summary...1 Commentary....3 Optimism Outlook...4 Earnings...6 Sales...7 Prices...8 Employment....9 Compensation...1 Credit Conditions Inventories...14 Capital Outlays Most Important Problem...18 Survey Profile...19 Economic Survey....2

3 SUMMARY OPTIMISM INDEX It has been a very difficult year and 29 did not end on an uplifting note. The Index of Small Business Optimism lost.3 points, falling to 88. (1986=1), 7. points higher than the survey s second lowest reading reached in March 29 (the lowest reading was 8.1 in 198). But optimism has clearly stalled in spite of the improvements in the economy since the first quarter of 29. LABOR MARKETS The job generating machine remains in reverse, jobs are being lost and new hiring is very weak. Ten percent of the owners increased employment, but 22 percent reduced employment (seasonally adjusted). While the trend for increased employment is going in the right direction, there is no indication that job growth will be strong enough to dramatically reduce the unemployment rate. Ten percent (seasonally adjusted) reported unfilled job openings, up two points from November, a good sign. Over the next three months, 15 percent plan to reduce employment (down two points), and eight percent plan to create new jobs (up one point), yielding a seasonally adjusted net negative two percent of owners planning to create new jobs, a one point improvement from November. CAPITAL SPENDING The frequency of reported capital outlays over the past six months was unchanged at 44 percent of all firms, holding at a record low level (data first collected in 1979). Capital spending is on the sidelines. Spending on capital projects remained at historic low levels, as did the demand for credit to finance such projects. Plans to make capital expenditures over the next few months rose two points to 18 percent, two points above the 35 year record low. Seven percent characterized the current period as a good time to expand facilities, down one point from November and only a net two percent expect business conditions to improve over the next six months, down one point from November. INVENTORIES AND SALES The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months remained negative at negative 25 percent, but this was a six point improvement over the November reading. The net percent of owners expecting real sales gains improved one point to a negative one percent of all owners, still negative, but 3 points better than the March. Small business owners continued to liquidate inventories and weak sales trends gave little reason to order new stocks. A net negative 28 percent of all owners reported gains in inventory stocks, a new monthly record. For all firms, a net negative four percent (a two point deterioration) reported stocks too low, so stocks are still considered a bit excessive relative to expected real sales volumes (which are weak). This survey was conducted in December 29. A sample of 3,938 small-business owners/members was drawn. Eight hundred twenty-five (83) usable responses were received a response rate of 21 percent. 1 NFIB Small Business Economic Trends Monthly Report

4 INFLATION The weak economy continued to put downward pressure on prices. Ten percent of the owners reported raising average selling prices, but 33 percent reported price reductions. Widespread price cutting contributed to the reports of lower nominal sales. Plans to raise prices fell one point to a net seasonally adjusted three percent of owners, 35 points below the July 28 reading. On the cost or input side, the percent of owners citing inflation as their number one problem (e.g. costs coming in the back door of the business) fell two points to two percent and only three percent cited the cost of labor, so neither labor costs nor materials costs are pressuring owners. PROFITS AND WAGES Reports of positive profit trends were unchanged at a net negative 43 percentage points. The persistence of this imbalance is bad news for the small business community. Profits are important for the support of capital spending. Of the 12 percent of owners reporting higher earnings, 5 percent cited stronger sales (unchanged) as the cause and eight percent credited lower labor costs. For the 54 percent reporting lower earnings compared to the previous three months, 65 percent cited weaker sales, four percent each blamed rising labor costs, higher materials costs and higher insurance costs, while six percent blamed lower selling prices. Poor real sales and price cuts are responsible for much of the weakness in profits. Owners continued to reduce compensation at a record pace, with 1 percent reporting reduced worker compensation and nine percent reporting gains, unchanged from November. 2 NFIB Small Business Economic Trends Monthly Report CREDIT MARKETS Regular borrowers (accessing capital markets at least once a quarter) continued to report difficulties in arranging credit at the highest frequency since A net 15 percent reported loans harder to get than in their last attempt, unchanged from November. Still that is not nearly as severe as the financial distress reported in the pre-1983 period. Twenty-four months of recession have sapped the financial strength of many small firms. Thirty-three (33) percent reported regular borrowing, fairly typical of post and unchanged from November. Eight percent of all owners reported that their borrowing needs were not satisfied, down two points from November. The remaining 92 percent of all owners either obtained the credit they wanted or were not interested in borrowing. Only 4 percent of the owners reported finance as their #1 business problem (down 1 point). Pre-1983, as many as 37 percent cited financing and interest rates as their top problem. The percent of owners reporting higher interest rates on their most recent loan was seven percent, while three percent reported lower rates. The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted net negative 15 percent (more owners expect that it will be harder to arrange financing),

5 COMMENTARY For small business owners, 29 ended with a thud. The Optimism Index fell and finished just seven points ahead of March which was the second lowest reading in 35 years of survey history, even though the economy posted positive growth in the second half of the year. Interest rates are at historically low levels, inflation virtually non-existent and real hourly earnings have held up well. In the first quarter of 198, the Index reached 1 and then went on to top 17, the record high reading a few quarters later, a huge surge after a tough recession. But now the Index is 12 points below 1 and has been below 9 for nearly two years. So why hasn t owner optimism soared like it usually does at the end of a recession, especially one that cut so deeply into our economic fabric? The answer is hope and change. There is little hope and the change that is being delivered is far from encouraging. Washington is offering nothing but higher taxes and fines and fees and more regulation. Congress is passing bills with thousands of pages of hidden bombs that will go off as the legislation is passed and implemented. Federal spending has soared amazingly, yet been ineffective except at pushing the federal deficit to incomprehensible heights, promising to double our national debt in just a few years. The interest burden this will place on average Americans is astounding. Uncertainty is the enemy of economic growth and investment, and Washington, D.C., the usual source of uncertainty, is delivering plenty of it. Confidence in our political leadership has tanked. So we begin the year with capital spending and inventory investment plans in record low territory as well as job creation plans. More owners expect sales to fall than to increase in the first quarter, more have been cutting workers and worker compensation than increasing them and reports of actual spending on capital projects are at 35 year historic lows. Interest rates are at historic lows and we have more savings to lend out, but few are willing to borrow and spend the funds. Few view the current period as a good time to expand their businesses. Those cutting average selling prices outnumber those raising them by a 3-to-1 margin. Plenty of opportunity to spend, lots of potential pent up demand but the management team is not able to lead the economy out of its doldrums, instead choosing to erect barriers to future growth. 3 NFIB Small Business Economic Trends Monthly Report

6 OVERVIEW - SMALL BUSINESS OPTIMISM OPTIMISM INDEX Based on Ten Survey Indicators (Seasonally Adjusted 1986=1) 11 Index Value (1986=1) OPTIMISM INDEX Based on Ten Survey Indicators (Seasonally Adjusted 1986=1) SMALL BUSINESS OUTLOOK OUTLOOK 4 NFIB Small Business Economic Trends Monthly Report Percent "Good Time to Expand" (thick line) Good Time to Expand and Expected General Business Conditions January 1986 to December Percent "Better" Minus "Worse" Expected General Business Conditions (thin line)

7 SMALL BUSINESS OUTLOOK (CONTINUED) OUTLOOK FOR EXPANSION Percent Next Three Months Good Time to Expand MOST IMPORTANT REASON FOR EXPANSION OUTLOOK Reason Percent by Expansion Outlook December 29 Reason Good Time Not Good Time Uncertain Economic Conditions Sales Prospects Fin. & Interest Rates 2 Cost of Expansion Political Climate 12 3 Other/Not Available 2 3 OUTLOOK FOR GENERAL BUSINESS CONDITIONS Net Percent ( Better Minus Worse ) Six Months From Now NFIB Small Business Economic Trends Monthly Report

8 SMALL BUSINESS EARNINGS EARNINGS Actual Last Three Months January 1986 to December 29-1 Net Percent ACTUAL EARNINGS CHANGES Net Percent ( Higher Minus Lower ) Last Three Months Compared to Prior Three Months NFIB Small Business Economic Trends Monthly Report MOST IMPORTANT REASON FOR LOWER EARNINGS Percent Reason December 29 Reason Current Month One Year Ago Two Years Ago Sales Volume Increased Costs* Cut Selling Prices Usual Seasonal Change Other * Increased costs include labor, materials, finance, taxes, and regulatory costs.

9 SMALL BUSINESS SALES Net Percent SALES Actual (Prior Three Months) and Expected (Next Three Months) January 1986 to December Expected Actual ACTUAL SALES CHANGES Net Percent ( Higher Minus Lower ) Last Three Months Compared to Prior Three Months SALES EXPECTATIONS Net Percent ( Higher Minus Lower ) During Next Three Months NFIB Small Business Economic Trends Monthly Report

10 SMALL BUSINESS PRICES Net Percent of Firms PRICES Actual Last Three Months and Planned Next Three Months January 1986 to December Planned Actual ACTUAL PRICE CHANGES Net Percent ( Higher Minus Lower ) Compared to Three Months Ago NFIB Small Business Economic Trends Monthly Report PRICE PLANS Net Percent ( Higher Minus Lower ) in the Next Three Months

11 SMALL BUSINESS EMPLOYMENT ACTUAL EMPLOYMENT CHANGES Net Percent ( Increase Minus Decrease ) in the Last Three Months QUALIFIED APPLICANTS FOR JOB OPENINGS Percent Few or No Qualified Applicants * * Percent EMPLOYMENT Planned Next Three Months and Current Job Openings January 1986 to December 29 Planned Job Openings NFIB Small Business Economic Trends Monthly Report

12 SMALL BUSINESS EMPLOYMENT (CONTINUED) JOB OPENINGS Percent With Positions Not Able to Fill Right Now HIRING PLANS Net Percent ( Increase Minus Decrease ) in the Next Three Months NFIB Small Business Economic Trends Monthly Report Net Percent SMALL BUSINESS COMPENSATION COMPENSATION Actual Last Three Months and Planned Next Three Months January 1986 to December 29 1 Planned Higher 5 Actual Higher

13 SMALL BUSINESS COMPENSATION (CONTINUED) ACTUAL COMPENSATION CHANGES Net Percent ( Increase Minus Decrease ) During Last Three Months COMPENSATION PLANS Net Percent ( Increase Minus Decrease ) in the Next Three Months PRICES AND LABOR COMPENSATION Net Percent Increase and Net Percent Compensation Actual Prices Actual Compensation NFIB Small Business Economic Trends Monthly Report

14 SMALL BUSINESS CREDIT CONDITIONS Net Percent of Firms CREDIT CONDITIONS Loan Availability Compared to Three Months Ago* January 1986 to December * For the population borrowing at least once every three months. REGULAR BORROWERS Percent Borrowing at Least Once Every Three Months NFIB Small Business Economic Trends Monthly Report AVAILABILITY OF LOANS Net Percent ( Easier Minus Harder ) Compared to Three Months Ago (Regular Borrowers)

15 SMALL BUSINESS CREDIT CONDITIONS (CONTINUED) BORROWING NEEDS SATISFIED Percent of All Businesses Last Three Months Satisfied/ Percent of All Businesses Last Three Months Not Satisfied (All Borrowers) 24 36/6 36/8 38/6 37/6 34/5 34/5 37/5 35/7 36/5 35/5 36/3 39/ /4 39/4 39/5 38/6 41/4 39/5 34/5 36/4 34/4 34/5 39/4 35/ /4 37/6 36/6 38/5 38/5 39/5 38/4 44/4 34/4 36/7 34/4 36/ /5 4/5 35/5 38/4 39/6 36/4 37/5 35/4 37/5 36/6 32/4 32/ /5 35/4 32/6 34/5 34/7 35/5 32/7 35/6 33/6 31/6 31/7 32/ /8 32/8 29/1 3/8 28/9 3/1 28/1 3/7 3/1 29/9 29/1 28/8 EXPECTED CREDIT CONDITIONS Net Percent ( Easier Minus Harder ) During Next Three Months (Regular Borrowers) Avg. Short-term Rate (thick line) INTEREST RATES Relative Rates and Actual Rates Last Three Months January 1986 to December Rate Relative (thin line) 13 NFIB Small Business Economic Trends Monthly Report

16 SMALL BUSINESS CREDIT CONDITIONS (CONTINUED) RELATIVE INTEREST RATE PAID BY REGULAR BORROWERS 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 NFIB Small Business Economic Trends Monthly Report Net Percent SMALL BUSINESS INVENTORIES INVENTORIES Actual (Last Three Months) and Planned (Next Three Months) January 1986 to December 29 Actual Planned

17 SMALL BUSINESS INVENTORIES (CONTINUED) ACTUAL INVENTORY CHANGES Net Percent ( Increase Minus Decrease ) During Last Three Months INVENTORY SATISFACTION Net Percent ( Too Low Minus Too Large ) at Present Time INVENTORY PLANS Net Percent ( Increase Minus Decrease ) in the Next Three to Six Months NFIB Small Business Economic Trends Monthly Report

18 SMALL BUSINESS CAPITAL OUTLAYS INVENTORY SATISFACTION AND INVENTORY PLANS Net Percent ( Too Low Minus Too Large ) at Present Time Net Percent Planning to Add Inventories in the Next Three to Six Months Percent -5-1 Inventory Plans Inventory Satisfaction CAPITAL EXPENDITURES Actual Last Six Months and Planned Next Three Months January 1986 to December Actual Planned Percent NFIB Small Business Economic Trends Monthly Report ACTUAL CAPITAL EXPENDITURES Percent Making a Capital Expenditure During the Last Six Months

19 SMALL BUSINESS CAPITAL OUTLAYS (CONTINUED) TYPE OF CAPITAL EXPENDITURES MADE Percent Purchasing or Leasing During Last Six Months Type Current One Year Ago Two Years Ago Vehicles Equipment Furniture or Fixtures Add. Bldgs. or Land Improved Bldgs. or Land AMOUNT OF CAPITAL EXPENDITURES MADE Percent Distribution of Per Firm Expenditures During the Last Six Months Amount Current One Year Ago Two Years Ago $1 to $ $1, to $4, $5, to $9, $1, to $49, $5, to $99, $1, No Answer CAPITAL EXPENDITURE PLANS Percent Planning a Capital Expenditure During Next Three to Six Months NFIB Small Business Economic Trends Monthly Report

20 SINGLE MOST IMPORTANT PROBLEM Problem SINGLE MOST IMPORTANT PROBLEM December 29 Current One Year Ago Survey High Survey Low Taxes Inflation Poor Sales Fin. & Interest Rates Cost of Labor Govt. Reqs. & Red Tape Comp. From Large Bus Quality of Labor Cost/Avail. of Insurance Other SELECTED SINGLE MOST IMPORTANT PROBLEM Inflation, Big Business, Insurance and Regulation January 1986 to December 29 Big Business Inflation Insurance Regulation Percent of Firms NFIB Small Business Economic Trends Monthly Report Percent of Firms SELECTED SINGLE MOST IMPORTANT PROBLEM Taxes, Interest Rates, Sales and Labor Quality January 1986 to December 29 Taxes Interest Rates & Finance Sales Labor Quality

21 SURVEY PROFILE OWNER/MEMBERS PARTICIPATING IN ECONOMIC SURVEY NFIB Actual Number of Firms NFIB OWNER/MEMBERS PARTICIPATING IN ECONOMIC SURVEY Industry of Small Business Percent Agriculture Retail Wholesale Transportation Manufacturing Construction Professional Services Financial Percent One NFIB OWNER/MEMBERS PARTICIPATING IN ECONOMIC SURVEY Two Number of Full and Part-Time Employees Three - Five Six - Nine Ten - Fourteen Fifteen - Nineteen Twenty - Thirty-Nine Forty Or More No Reply 19 NFIB Small Business Economic Trends Monthly Report

22 NFIB RESEARCH FOUNDATION SMALL BUSINESS ECONOMIC SURVEY 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? 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? 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? If higher or lower, what is the most important reason? During the last calendar quarter, was your dollar sales volume higher, lower, or about the same as it was for the quarter before? 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? How are your average selling prices compared to three months ago? In the next three months, do you plan to change the average selling prices of your goods and/or services? During the last three months, did the total number of employees in your firm increase, decrease, or stay about the same? NFIB Small Business Economic Trends Monthly Report 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)? Do you have any job openings that you are not able to fill right now? In the next three months, do you expect to increase or decrease the total number of people working for you? Over the past three months, did you change the average employee compensation? Do you plan to change average employee compensation during the next three months?

23 Small Business Survey Questions Page in Report Are loans easier or harder to get than they were three months ago? During the last three months, was your firm able to satisfy its borrowing needs? Do you expect to find it easier or harder to obtain your required financing during the next three months? 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? 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? During the last three months, did you increase or decrease your inventories? At the present time, do you feel your inventories are too large, about right, or inadequate? 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? During the last six months, has your firm made any capital expenditures to improve or purchase equipment, buildings, or land? If [your firm made any capital expenditures], what was the total cost of all these projects? Looking ahead to the next three to six months, do you expect to make any capital expenditures for plant and/or physical equipment? What is the single most important problem facing your business today? Please classify your major business activity, using one of the categories of example below How many employees do you have full and part-time, including yourself?... 19