December 13th, 2011
Econintersect: The NFIB's monthly optimism index rose from 90.2 to 92.0 - but remains in recession territory. However, the commentary is significantly more upbeat this month.
“After so many months of pessimism, November’s modest gain made it feel like spring, again,” said NFIB Chief Economist Bill Dunkelberg. “We have good reason to be optimistic about last month’s report and hopeful about what it means for the future. Still, our urrent reality is still very much the ongoing economic winter. November’s reading is still well below the average reading prior to 2008 levels from previous recoveries. More acutely, it is 2 points below January’s index, which means that there has been no progress over the calendar year. We should be encouraged, but cautiously so.”
Part of the commentary in the report:
This process is difficult and protracted. In 2007, 845,000 new firms were formed (displacing 804,000 existing firms). This process went into reverse in 2008. More firms terminated, fewer started, fewer new homes were built, inventory went on sale to raise cash and employment was slashed as the now surplus of firms struggled to survive. Many of these sought loans to “tide them over”, loans that by now would in most instances have gone bad had they been made.
The adjustment seems to be about over. Historically high percentages of owners report inventories are in balance, reduced to match anemic consumer spending. However few plan to add to stocks as prospects for improved growth have not been optimistic. Firms have stopped firing workers, employment has adjusted to weaker sales, but hiring new workers remains muted, as sales prospects offer little reason to hire more workers.
Most equipment is still working requiring little need to buy new stuff. Still a problem is the number of firms competing for reduced levels of consumer spending, experiencing poor financial performance. There is likely more to come here, more terminations. This will increase sales at the remaining firms and with a boost from modestly improving consumer spending, begin to address the unemployment problem a bit more aggressively. The excess supply of structures will continue to be a drag, but less so.
Highlights of this survey:
- Sales reports improved in November, albeit marginally, and still remaining negative overall, rising to a net negative 11 percent, with more firms reporting sales trending down than up. As in previous months, a full quarter of owners indicated “poor sales” is their top business problem. Unadjusted, 21 percent of all owners reported higher sales (last three months compared to prior three months, down 1 point) while 29 percent reported lower sales (down 1 point). Most of the reports on sales volume were made before “Black Friday”; the impact of that level of spending will show up in the December reports on sales. The net percent of owners expecting higher real sales gained 8 points to a net 4 percent of all owners (seasonally adjusted), but still 9 points below January 2011’s reading.
- The net percent of owners expecting better business conditions in six months was a negative 12 percent, 4 points better than October, but still 22 percentage points below January’s reading. Not seasonally adjusted, 29 percent expect deterioration, 12 percent expect improvement. A net four percent of all owners expect improved real sales volumes, a huge 8 point gain over October.
- The employment picture brightened last month, ending five months of decline. In November, NFIB owners reported an overall increase in employment of 0.12 workers per firm in November. Seasonally adjusted, 13 percent of the owners added, while 11 percent reduced employment. The remaining 76 percent of owners made no net change in employment. Forty-seven percent of owners hired or tried to hire and 35 percent of them reported few or no qualified applicants for positions. Sixteen percent (seasonally adjusted) reported hard to fill job openings, up 2 points from the previous month.
- Future hiring plans were also positive. Over the next three months, a seasonally adjusted net seven percent of owners plan to create new jobs—a 4 point improvement from October and the strongest reading in 38 months. Historically, during an expansion plans to hire should be in in the double digit levels.
- The frequency of reported capital outlays over the past six months rose 1 point to 53 percent, the second monthly increase in succession after languishing between 45 and 52 percent for the last 12 quarters. The percent of owners planning capital outlays in the next three to six months rose 3 points to 24 percent, the highest reading in 40 months (also reached in March this year). Money is available, but most owners are not interested in a loan to finance the purchase of equipment they cannot use. Only eight percent characterized the current period as a good time to expand facilities (seasonally adjusted), up 1 point and only 1 point below the best reading in the past 38 months.