NFIB SMALL BUSINESS ECONOMIC TRENDS NFIB SMALL BUSINESS ECONOMIC TRENDS William C. Dunkelberg Holly Wade May 2011 SMALL BUSINESS OPTIMISM INDEX COMPONENTS Seasonally Change From Contribution Index Component Adjusted Level Last Month Index Change Plans to Increase Employment 2% 0 * Plans to Make Capital Outlays 21% -3 * Plans to Increase Inventories -1% -2 * Expect Economy to Improve -8% -3 * Expect Real Sales Higher 5% -1 * Current Inventory 1% 2 * Current Job Openings 14% -1 * xpected Credit Conditions -13% -4 * Now a Good Time to Expand 4% -1 * Earnings Trend -26% 6 * Total Change -7 * Based on a Survey of Small and Independent Business Owners 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. The NFIB Research Foundation has collected Small Business Economic Trends Data with Quar- terly surveys since 1973 and monthly surveys since 1986. The sample is drawn from the membership files of the National Federation of Independent Business (NFIB). Each was mailed a question- naire and one reminder. Subscriptions for twelve monthly SBET issues are $250. 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 publica- tion name and date and note it is a copyright of the NFIB Research Foundation. © NFIB Research Foundation. ISBS #0940791-24-2. Chief Econo- mist William C. Dunkelberg and Policy Analyst Holly Wade are responsible for the report. NFIB SMALL BUSINESS ECONOMIC TRENDS IN THIS ISSUE Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Commentary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Optimism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 10 Credit Conditions. . . . . . . . . . . . . . . . . . . . . . . 12 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Capital Outlays. . . . . . . . . . . . . . . . . . . . . . . . . 16 Most Important Problem . . . . . . . . . . . . . . . . . 18 Survey Profile . . . . . . . . . . . . . . . . . . . . . . . . . 19 Economic Survey. . . . . . . . . . . . . . . . . . . . . . . 20 1 | NFIB Small Business Economic Trends Quarterly Report SUMMARY OPTIMISM INDEX The Small Business Optimism Index fell 0.7 points in April to 91.2, not much but still a disappointing outcome following the March decline. After last month’s larger decline, this month is more akin to an “after shock”. Thankfully, the labor market components did not decline further, although net job creation weakened. Also, fewer reported adverse profit trends and reports of positive sales trends were still less frequent than reports of quarterly declines, but the best reading since December 2007, the peak of the last expansion. LABOR MARKETS Fourteen (14) percent (seasonally adjusted) reported unfilled job openings (down 1 point). Over the next three months, 16 percent plan to increase employment (down 2 points), and 6 percent plan to reduce their workforce (unchanged), yielding a seasonally adjusted net 2 percent of owners planning to create new jobs, unchanged from March but a very weak reading. CAPITAL SPENDING The frequency of reported capital outlays over the past six months fell 1 point to 50 percent of all firms. Of those making expenditures, 35 percent reported spending on new equipment (up 1 point), 18 percent acquired vehicles (up 1 point), and 11 percent improved or expanded facilities (down 1 point). Three percent acquired new buildings or land for expansion (down 1 point) and 11 percent spent money for new fixtures and furniture (unchanged). Capital spending remains historically low in spite of very low interest rates and all sorts of expensing incentives. The problem is that “cheaper” equipment is still no bargain if you can’t use it. The percent of owners planning capital outlays in the next three to six months fell 3 points to 21 percent, a recession level reading. Money is cheap, but most owners are not interested in a loan to finance equipment they don’t need. Prospects are still uncertain enough to discourage any but the most profitable and promising investments. Four percent characterized the current period as a good time to expand facilities (seasonally adjusted), down 1 point from March and 4 points lower than January. The net percent of owners expecting better business conditions in 6 months slipped another 3 points to negative 8 percent, 18 percentage points worse than in January. Uncertainty is the enemy, and there is plenty of it to convince owners to “keep their powder dry”. Apparently consumers feel much the same way, as more customers spending more money would overcome the reluctance of owners to hire and make capital outlays. One in four still cite “weak sales” as their top business problem. This survey was conducted in April 2011. A sample of 10,799 small-business owners/members was drawn. One thousand nine hundred ten (1985) usable responses were received – a response rate of 18 percent. 2 | NFIB Small Business Economic Trends Quarterly Report INVENTORIES AND SALES The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months did improve by 7 percentage point to a net negative 5 percent, the best reading in 40 months. But consumer sentiment is stuck in the mud as gas and food prices continue to rise, and many consumers still suffer from heavy debt and mortgage payments which depress their spending. The net percent of owners expecting higher real sales fell 1 point to a net 5 percent of all owners (seasonally adjusted), 8 points below January’s reading. This is bad news for hiring and inventory investment. A net negative 9 percent of all owners reported growth in inventories (seasonally adjusted), a 2 point deterioration. Small business owners continued to liquidate inventories but at one of the lowest frequency in 35 months. For all firms, a net 1 percent (up 2 points) reported stocks too low, historically one of the most “satisfied” readings in survey history. Owners are happy with current stocks, but that is relative to expected sales which are not strong. Plans to add to inventories lost 2 points, falling to a net negative 1 percent of all firms (seasonally adjusted), consistent with the strong reading on satisfaction with current stocks. INFLATION In April, the percentage rose to 12 percent, a gain of 36 percentage points from the low reading in 2009 and, a more recent perspective, 23 points higher than last September. A net 24 percent planned hikes in average selling prices in April. The “fire sale” is over and selling prices are now on the rise, giving a boost to profit trends in April (although much more is needed). PROFITS AND WAGES Reports of positive earnings trends improved 6 points in April, registering a net negative 26 percent, still an ugly number but sales trends improved and fewer owners cut selling prices, both positive for the bottom line. Seasonally adjusted, a net 9 percent reported raising worker compensation, up 2 points. A seasonally adjusted 7 percent plan to raise compensation, down 2 points. CREDIT MARKETS Overall, 92 percent reported that all their credit needs were met or that they were not interested in borrowing. Eight percent reported that not all of their credit needs were satisfied. Three percent reported financing as their #1 business problem, so “credit supply” is not a problem for the overwhelming majority. For the banks with money to lend, “credit demand” is weak. The historically high percent of owners who cite weak sales means that, for many owners, investments in new equipment or new workers are not likely to “pay back”. This is a major cause for the lack of credit demand observed in financial markets along with the deficiency in housing starts, a million units below “normal”. Thirty-two percent of all owners reported borrowing on a regular basis, 4 points above the record low. SUMMARY 3 | NFIB Small Business Economic Trends Quarterly Report COMMENTARY The “get up and go” usually present in the small business sector after a recession “got up and went” somewhere. For the small business sector, this is the worst recovery on record. The recovery in the small business indicators looks especially anemic in comparison to the recovery after the 1980-82 recession period, the era with a depth most comparable to our most recent experience. The explanation for this is murky and complex, driven by the “seeds of destruction” planted in the 2003-07 expansion. When stock market bubbles burst, winners and losers are quickly identified and the economy moves on as the redistribution in wealth is efficiently imposed by the market. This time around, the process of declaring winners and losers is impeded by the complications of mortgage finance concocted by the financial market and the efforts of the government to prevent the redistribution required. Houses are more widely held than stocks and the crash has impacted many more people and reached far down the income distribution, impacting attitudes as well as the ability to spend. Savers’ incomes have been impaired by the Fed’s low rate policies. The over-supply of houses, business facilities and inventory weigh heavily on new construction and until recently, production. Although much lower, the ratio of consumer debt to income is still high, families not actually in foreclosure are still saddled with high mortgage payments. And then there’s Washington. Enough said, not enough room to detail the detrimental impact of the uncertainty created by “leadership” there. Unemployment remains high because in the boom, employment was too high and especially in construction where excessive levels of employees created such high output that it impeded their re-employment in the recovery. The much vaunted “risk managers” at financial institutions failed, and their institutions would have as well had they not been “bailed out”. Owners report that inventories are now in balance with expected sales, but these expectations are muted, providing little reason to hire more workers. Capital spending remains low because the prospects of generating the additional sales needed to pay off loans used to finance expansion are not good. Selling prices are rising sharply not because costs are rising but because the “fire sale” needed to bring inventories and excess retail capacity into balance is about over. New construction and services are labor intensive and dominated by small firms. Spending must recover here to get employment up and running. Maybe after consumers are through buying cars they will get their nails done. 4 | NFIB Small Business Economic Trends Quarterly Report OVERVIEW - SMALL BUSINESS OPTIMISM 70 80 90 100 110 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 Index Value (1986=100) YEAR OPTIMISM INDEX Based on Ten Survey Indicators (Seasonally Adjusted 1986=100) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2006 101.1 101.5 98.0 100.1 98.5 96.7 98.1 95.9 99.4 100.7 99.7 96.5 2007 98.9 98.2 97.3 96.8 97.2 96.0 97.6 96.3 97.3 96.2 94.4 94.6 2008 91.8 92.9 89.6 91.5 89.3 89.2 88.2 91.1 92.9 87.5 87.8 85.2 2009 84.1 82.6 81.0 86.8 88.9 87.8 86.5 88.6 88.8 89.1 88.3 88.0 2010 89.3 88.0 86.8 90.6 92.2 89.0 88.1 88.8 89.0 91.7 93.2 92.6 2011 94.1 94.5 91.9 91.2 OPTIMISM INDEX Based on Ten Survey Indicators (Seasonally Adjusted 1986=100) -40 -20 0 20 40 60 80 0 10 20 30 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 Percent "Good Time to Expand" (thick line) Percent "Better" Minus "Worse" Expected General Business Conditions (thin line) YEAR OUTLOOK Good Time to Expand and Expected General Business Conditions January Quarter 1974 to April Quarter 2011 (Seasonally Adjusted) SMALL BUSINESS OUTLOOK 5 | NFIB Small Business Economic Trends Quarterly Report SMALL BUSINESS OUTLOOK (CONTINUED) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2006 20 20 19 18 18 13 16 13 18 20 17 17 2007 17 18 12 12 12 13 16 12 14 14 13 14 2008 9856446611577 2009 631454559787 2010 542456546798 2011 8754 OUTLOOK FOR EXPANSION Percent Next Three Months “Good Time to Expand” (Seasonally Adjusted) MOST IMPORTANT REASON FOR EXPANSION OUTLOOK Reason Percent by Expansion Outlook April 2011 Reason Good Time Not Good Time Uncertain Economic Conditions 34517 Sales Prospects 242 Fin. & Interest Rates 121 Cost of Expansion 022 Political Climate 086 Other/Not Available 111 OUTLOOK FOR GENERAL BUSINESS CONDITIONS Net Percent (“Better” Minus “Worse”) Six Months From Now (Seasonally Adjusted) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2006 6 3 -5 -3 -10 -8 -6 -8 2 11 11 12 2007 -1 -2 -7 -8 -3 -5 -1 0 2 -2 -10 -4 2008 -22 -9 -23 -12 -12 -19 -17 4 14 -4 -2 -13 2009 -12 -21 -22 2 12 7 -3 10 8 11 3 2 2010 1-9-8 0 8-6-15-8-3 816 9 2011 10 9 -5 -8 6 | NFIB Small Business Economic Trends Quarterly Report SMALL BUSINESS EARNINGS EARNINGS Actual Last Three Months January Quarter 1974 to April Quarter 2011 (Seasonally Adjusted) ACTUAL EARNINGS CHANGES Net Percent (“Higher” Minus “Lower”) Last Three Months Compared to Prior Three Months (Seasonally Adjusted) MOST IMPORTANT REASON FOR LOWER EARNINGS Percent Reason April 2011 -50 -40 -30 -20 -10 0 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 Net Percent YEAR Reason Current Month One Year Ago Two Years Ago Sales Volume 21 29 36 Increased Costs* 13 9 8 Cut Selling Prices 434 Usual Seasonal Change 656 Other 326 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2006 -16 -15 -12 -13 -11 11 -16 -19 -8 -14 -18 -15 2007 -21 -19 -15 -19 -15 -18 -17 -22 -20 -18 -25 -20 2008 -27 -25 -33 -28 -28 -33 -37 -30 -35 -35 -38 -42 2009 -47 -44 -46 -43 -43 -42 -45 -40 -40 -40 -43 -43 2010 -42 -39 -43 -31 -28 -32 -33 -30 -33 -26 -30 -34 2011 -28 -27 -32 -26 * Increased costs include labor, materials, finance, taxes, and regulatory costs. 7 | NFIB Small Business Economic Trends Quarterly Report SMALL BUSINESS SALES SALES EXPECTATIONS Net Percent (“Higher” Minus “Lower”) During Next Three Months (Seasonally Adjusted) ACTUAL SALES CHANGES Net Percent (“Higher” Minus “Lower”) Last Three Months Compared to Prior Three Months (Seasonally Adjusted) -40 -30 -20 -10 0 10 20 30 40 50 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 Expected Actual Net Percent YEAR SALES Actual (Prior Three Months) and Expected (Subsequent Three Months) January 1974 to April 2011 (Seasonally Adjusted) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2006 2656116325203 2007 -3-1 0 4 1-4-1-4-4-4-3 1 2008 -7 -8 -11 -9 -11 -12 -15 -10 -11 -21 -25 -29 2009 -31 -28 -34 -28 -33 -34 -34 -27 -26 -31 -31 -25 2010 -26 -26 -25 -15 -11 -15 -16 -16 -17 -13 -15 -16 2011 -11 -11 -12 -5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2006 24 28 12 21 20 13 18 10 17 17 21 18 2007 22 17 14 14 16 11 14 13 14 13 8 6 2008 4 0 -3 -3 -11 -11 -9 -6 -2 -16 -14 -18 2009 -20 -29 -31 -11 -5 -10 -11 -5 -6 -4 -2 -1 2010 3 0 -3 6 5 -5 -4 0 -3 1 6 8 2011 13 14 6 5 8 | NFIB Small Business Economic Trends Quarterly Report SMALL BUSINESS PRICES PRICE PLANS Net Percent (“Higher” Minus “Lower”) in the Next Three Months (Seasonally Adjusted) ACTUAL PRICE CHANGES Net Percent (“Higher” Minus “Lower”) Compared to Three Months Ago (Seasonally Adjusted) PRICES Actual Last Three Months and Planned Next Three Months January Quarter 1974 to April Quarter 2011 (Seasonally Adjusted) -30 -20 -10 0 10 20 30 40 50 60 70 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 Actual Planned Net Percent YEAR Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2006 18 23 17 26 24 23 23 22 20 16 17 8 2007 12 13 15 18 16 19 19 13 9 15 14 16 2008 8131820232932262015 0 -6 2009 -15 -24 -23 -24 -22 -17 -19 -19 -21 -17 -17 -22 2010 -18 -21 -20 -11 -15 -13 -11 -8 -11 -5 -4 -5 2011 -4 5 9 12 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2006 29 27 26 28 30 29 30 29 22 21 22 26 2007 24 23 22 24 23 21 23 22 21 22 26 26 2008 26 22 29 31 32 36 38 30 24 18 11 3 2009 210135586543 2010 810 91314111010 7121315 2011 19 21 24 24 [...]... 804 2011 2144 774 811 1985 NFIB OWNER/MEMBERS PARTICIPATING IN ECONOMIC SURVEY Industry of Small Business 30 25 Percent 20 15 10 5 NFIB OWNER/MEMBERS PARTICIPATING IN ECONOMIC SURVEY Number of Full and Part-Time Employees 35 30 Percent 25 20 15 10 5 0 19 | NFIB Small Business Economic Trends Quarterly Report 0 NFIB RESEARCH FOUNDATION SMALL BUSINESS ECONOMIC SURVEY SMALL BUSINESS SURVEY QUESTIONS PAGE... 6.2 2011 6.0 6.0 5.9 6.5 SMALL BUSINESS INVENTORIES INVENTORIES Actual (Last Three Months) and Planned (Next Three Months) January Quarter 1974 to April Quarter 2011 (Seasonally Adjusted) 15 10 5 0 Net Percent 14 | NFIB Small Business Economic Trends Quarterly Report 2006 -5 -10 -15 -20 Actual -25 Planned -30 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 YEAR SMALL BUSINESS INVENTORIES (CONTINUED)... Aug Sep Oct Nov Dec SMALL BUSINESS COMPENSATION COMPENSATION Actual Last Three Months and Planned Next Three Months January 1986 to April 2011 (Seasonally Adjusted) Net Percent 10 | NFIB Small Business Economic Trends Quarterly Report Jan 40 35 30 25 20 15 10 5 0 -5 Planned Higher Actual Higher 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 102011 YEAR SMALL BUSINESS COMPENSATION... April Quarter 2011 50 20 40 20 15 10 0 -10 10 -20 -30 -40 5 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 YEAR Actual (thin line) Relative (thick line) 30 13 | NFIB Small Business Economic Trends Quarterly Report Jan SMALL BUSINESS CREDIT CONDITIONS (CONTINUED) RELATIVE INTEREST RATE PAID BY REGULAR BORROWERS* Net Percent (“Higher” Minus “Lower”) Compared to Three Months Ago Jan Feb Mar Apr... Quarter 1974 to April Quarter 2011 (Seasonally Adjusted) 40 Percent 30 20 10 Planned 0 Job Openings -10 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 YEAR 9 | NFIB Small Business Economic Trends Quarterly Report Jan SMALL BUSINESS EMPLOYMENT (CONTINUED) JOB OPENINGS Percent With Positions Not Able to Fill Right Now (Seasonally Adjusted) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2006... 3 3 0 -3 2 -4 0 1 2 -3 2008 -4 -2 -2 -1 -4 -5 -4 -9 -3 -5 -6 -4 2009 -10 -10 -13 -7 -3 -6 -5 -7 -6 -3 -3 -8 2010 -4 -7 -7 -2 2 -3 -4 -7 -3 -4 0 -3 2011 -1 -2 1 -1 15 | NFIB Small Business Economic Trends Quarterly Report 2006 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... Taxes January Quarter 1974 to April Quarter 2011 40 Taxes Sales Interest Rates Percent of Firms 18 | NFIB Small Business Economic Trends Quarterly Report 74 Labor Quality 30 20 10 0 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 YEAR SURVEY PROFILE OWNER/MEMBERS PARTICIPATING IN ECONOMIC SURVEY NFIB Actual Number of Firms Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2006 1274 484 471 1094... -20 -30 35 30 25 20 15 10 5 0 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 YEAR Labor Compensation (Thin Line) Prices (Thick Line) (Seasonally Adjusted) 11 | NFIB Small Business Economic Trends Quarterly Report 2006 SMALL BUSINESS CREDIT CONDITIONS CREDIT CONDITIONS Loan Availability Compared to Three Months Ago* January Quarter 1974 to April Quarter 2011 4 0 Net Percent -4 -8 -12 -16 -20... 2007 30 30 33 29 29 28 27 27 29 27 27 30 2008 25 26 25 26 25 26 21 23 21 19 21 17 2009 19 18 16 19 20 17 18 16 18 17 16 18 2010 20 20 19 19 20 19 18 16 19 18 20 21 2011 22 22 24 21 17 | NFIB Small Business Economic Trends Quarterly Report Amount SINGLE MOST IMPORTANT PROBLEM SINGLE MOST IMPORTANT PROBLEM April 2011 Current One Year Ago Survey High Survey Low Taxes 19 22 32 8 Inflation 8 4 41 0 Poor... 35 37 38 35 2007 37 39 35 37 38 35 36 35 36 36 32 34 2008 36 34 33 36 35 35 34 34 32 33 31 33 2009 35 36 33 33 34 30 33 32 33 33 33 33 2010 32 34 35 31 32 29 32 31 33 31 28 30 2011 12 | NFIB Small Business Economic Trends Quarterly Report 2006 31 31 29 32 AVAILABILITY OF LOANS Net Percent (“Easier” Minus “Harder”) Compared to Three Months Ago (Regular Borrowers) Jan Feb Mar Apr May Jun Jul Aug Sep . NFIB SMALL BUSINESS ECONOMIC TRENDS NFIB SMALL BUSINESS ECONOMIC TRENDS William C. Dunkelberg Holly Wade May 2011 SMALL BUSINESS OPTIMISM INDEX COMPONENTS . . . . . . . . . 19 Economic Survey. . . . . . . . . . . . . . . . . . . . . . . 20 1 | NFIB Small Business Economic Trends Quarterly Report SUMMARY OPTIMISM INDEX The Small Business Optimism Index. SUMMARY 3 | NFIB Small Business Economic Trends Quarterly Report COMMENTARY The “get up and go” usually present in the small business sector after a recession “got up and went” somewhere. For the small