NFIB Small Business Optimism Index Falls for the Second Month

May 10th, 2011
in econ_news

Econintersect: The month of April 2011 marked a second consecutive month of decline in small-business optimism.  The National Federation of  Independent Business (NFIB)’s index dropped to 91.2 in April.

According to the press release, the NFIB is surprised by the surprising gains cited in last week’s Labor Department jobs report, and believe the bulk of the new hiring is happening by large firms.  However, the ADP data (analysis here) shows small business was indeed the driver for jobs growth.

Follow up:

 From the NFIB report:

“While it’s too early to say that a trend has emerged, a second consecutive month of decline in small-business optimism does very little to encourage further confidence in a strong economic recovery,” said NFIB Chief Economist Bill Dunkelberg. “Owners simply find no reason to be optimistic about the future and therefore they find no reason to pick up the pace of spending and hiring. It’s difficult to know exactly why the outlook for small firms is in decline; but it’s a safe bet that political and economic uncertainty—about the deficit, the threat of inflation, rising energy and health care costs—are at top of the mind for most small-business owners. Who is going to stay positive in this turbulent political environment?”


Optimism Components
Net %
Change
PLAN TO INCREASE EMPLOYMENT
2 0
PLAN TO INCREASE CAP. OUTLAYS*
21 -3
PLAN TO INCREASE INVENTORIES
-1 -2
EXPECT ECONOMY TO IMPROVE
-8 -3
EXPECT HIGHER REAL SALES
5 -1
CURRENT INVENTORY SATISFACTION
1 2
CURRENT JOB OPENINGS*
14 -1
EXPECTED CREDIT CONDITIONS
-13 -4
NOW A GOOD TIME TO EXPAND*
4 -1
EARNINGS TRENDS
*Note: These components are measured as actual percentages of all respondents and are not net percentages. A net percentage is the percent positive minus percent negative.
-26 6

Some other highlights of April’s Optimism Index include:

  • The net percent of owners expecting better business conditions in six 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”.
  • Higher earnings were reported in April, improving 6 points and registering a net negative 26 percent.  While not a positive number, it is a greatly improved number for the small-business bottom line. Not seasonally adjusted, 15 percent reported profits higher (up 4 points), but 47 percent reported profits falling (down 2 points).
  • In April, a net 12 percent reported raising average selling prices, a 3 point gain from March and 23 points higher than last September. A net 24 percent planned hikes in average selling prices in April. A major force behind the price hikes is the elimination of inventory excesses which appeared in 2008 when consumers decided to raise their saving rate.
  • Only 50 percent of all firms reported making capital outlays last month, down 1 point from the month prior. 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.

Doug Short has provided excellent graphic analysis and comparisons of small business optimism to consumer sentiment at GEI Analysis. 

Sources:  NFIB and GEI Analysis 









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