April 10th, 2012
Econintersect: The NFIB's monthly optimism index fell 1.8 to 92.5:
- first decline after sixth consecutive month of gains
- remains historically low
- nine of ten index components dropped last month
- although hiring plans and expected real sales growth took a significant dive, owners reported the largest increase in new jobs per firm in a year
The fun in reading the NFIB reports comes from the blasts directed at Washington. This month, no blast. Instead, they gave the best explaination of what happened with the poor BLS jobs report.
The March employment numbers were a bit of a surprise and a disappointment. On the establishment survey, one might hypothesize that we hired in January and February a lot of the workers we would have hired in March as the weather improved.
This means that we added seasonal adjustments to January and February numbers that were not as low as they usually would be with bad winter weather. So, they looked good. Then March hiring was low because a substantial share of it was done in the prior two months, and the seasonal adjustment couldn’t overcome the advance hiring. In short, the current employment stats are not seasonally typical so the seasonal adjustments mislead us.
The report commentary in full:
The March survey results were bad news, ending what promised to be steady, albeit glacially slow, improvements in the small business sector of the economy. Nothing much happened in March to make owners more optimistic about the future and that seems to be a problem, the status quo. Europe was quiet but somber, uneasy, as if waiting for another shoe to drop. Consumer confidence and spending remains depressed. And health care is in the Supreme Court creating more uncertainty, either way the decision goes.
Inflation pressures are building and reports of rising worker compensation are the highest since 2008. The percent of owners reporting “inflation” (rising costs for inputs) as the #1 business problem are the second most frequent since 2008, the highest since 2008 occurred a few months earlier in 2011. Reports of increases in average selling prices are rising and net 21 percent of the owners plan to raise their selling prices in the coming months.
The March employment numbers were a bit of a surprise and a disappointment. On the establishment survey, one might hypothesize that we hired in January and February a lot of the workers we would have hired in March as the weather improved. This means that we added seasonal adjustments to January and February numbers that were not as low as they usually would be with bad winter weather. So, they looked good. Then March hiring was low because a substantial share of it was done in the prior two months, and the seasonal adjustment couldn’t overcome the advance hiring. In short, the current employment stats are not seasonally typical so the seasonal adjustments mislead us. The pattern of losses in retailing is a puzzle, especially since retail sales growth has been positive, confirmed by the rise in the net percent of owners reporting improving sales trends. This raises a second inconsistency, if employment is doing so well, where is the Gross Domestic Product (GDP) that they are producing? Construction and manufacturing employment are behaving as expected. We make more GDP today than at the peak of the expansion in dollar terms, but there are a million housing starts missing in GDP, replaced by manufacturing output (lots of that being exported). Thus, we are using seven million fewer workers since construction is labor intensive and manufacturing is not.
The NFIB models based on the percent of owners reporting “poor sales” as their top business and on the percent with hard-to-fill job openings and job creation plans have tracked the unemployment rate quite well. If March data were to be the same as the April survey, the forecast would add half a point to the unemployment rate for Q2.
The Federal Reserve has become more active in the media, trying to be more “transparent” about policy but adding little clarity. The basic message is that rates will remain low as long as the economy is weak but no one knows at what point the economy will be deemed strong again by policymakers – creating more uncertainty.
For those who want a summary of the survey:
- Job Creation: Job creation in March was the bright spot in this month’s Index; the net change in employment per firm seasonally adjusted was 0.22, far above January’s “0” reading. Seasonally adjusted, 10 percent of the owners added an average of 3.1 workers per firm over the past few months, and 13 percent reduced employment an average of 2.1 workers per firm. The remaining 77 percent of owners made no net change in employment. Forty-four (44) percent of owners hired or tried to hire in the last three months and 32 percent reported few or no qualified applicants for positions. The ability to find qualified applicants for available jobs continues to be a problem for many small-business owners. The percent of owners reporting hard to fill job openings fell 2 points to 15 percent, the second monthly decline since reaching 18 percent in January. The net percent of owners planning to create new jobs is in its fourth month of decline. March’s net “0” reading for planned job creation was 4 points lower than February and 7 points lower than November 2011. The reports of actual hiring over the past few months are the best since February 2011, making March the best job creation month in a year. However, the decline in the percent of owners with a hard-to-fill opening and in the percent of owners planning to increase the number of workers employed indicate growing weakness in the job market and portend a rising unemployment rate.
- Sales and Earnings: Owners reporting higher nominal sales over the past three months (seasonally adjusted) gained a surprising 8 points, rising to a net 1 percent, and providing the best reading since December 2007. However, even with the improvements in retail sales in recent months, 22 percent of owners surveyed still reported “weak sales” as their top business problem. Seasonally unadjusted, 23 percent of all owners reported higher sales (last three months compared to prior three months, up 3 points), while 31 percent reported lower sales (down 1 point). Expectations for higher real sales dropped, falling 4 points to a net 8 percent of all owners (seasonally adjusted). Not seasonally adjusted, 42 percent expect improvement over the next 3 months (up 1 point) and 16 percent expect declines (down 5 points). A lack of sales remains a problem for owners with 22 percent reporting “poor sales” as their top business problem.
- Capital Expenditures: The frequency of reported capital outlays over the past six months fell 5 points to 52 percent, a reversal of the gains made during the two months prior. Of those making expenditures, 36 percent reported spending on new equipment (down 4 points), 20 percent acquired vehicles (down 3 points), and 13 percent improved or expanded facilities (unchanged). Four percent acquired new buildings or land for expansion (down 1 point) and 11 percent spent money for new fixtures and furniture (down 1 point). Plans to make capital outlays in the next three to six months fell one point, with 22 percent of owners indicating they are likely to make the investment. Seven percent of owners characterized the current period as a good time to expand facilities (seasonally adjusted), and the net percent of owners expecting better business conditions in six months settled at a negative 8 percent. Not seasonally adjusted, 21 percent expect deterioration (up 4 points), and 23 percent expect improvement (up 2 points). A net 8 percent of all owners expect improved real sales volumes, down 4 points from February.
- Credit Access: Financing continues to be low on the list of concerns for small-business owners. Only four percent cited financing as their top business problem, compared to 20 percent citing taxes and 19 percent citing unreasonable regulation. Ninety-two (92) percent reported that all their credit needs were met or that they were not interested in borrowing. Twenty-seven (27) percent reported all credit needs met, compared to eight percent who reported that not all of their credit needs were satisfied. Just over half of owners said they did not want a loan, and 13 percent did not respond to the question. Thirty-one (31) percent of all owners reported borrowing on a regular basis. A net 11 percent reported loans are “harder to get” compared to their last attempt (asked of regular borrowers only), also down 3 points. The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted negative 11 percent (more owners expect that it will be “harder” to arrange financing than easier), 1 point worse than February.
- This month's report is based on the responses of 757 randomly sampled small businesses in NFIB’s membership, surveyed throughout the month of March.