Econintersect: The National Federation of Independent Business (NFIB)'s September 2012 monthly optimism index fell a marginal 0.1 to 92.8 - slightly higher than the lowest point of 2012 achieved in July.
NFIB reports usually contain blasts directed at Washington. This month's sentiment was the election.
“The election is just weeks away and essentially a horse-race, and its outcomes would have vastly divergent policy implications,” said NFIB chief economist William Dunkelberg. “Everyone is waiting to see what happens, especially small-business owners who have a lot at stake in the outcome—which could mean higher marginal tax rates and more deficits, OR lower marginal tax rates and less government. Small-business owners are reporting that the political climate is a reason not to expand—second only to the economy, which is only keeping up with population growth. And so, in the meantime, owners are in maintenance mode; spending only where necessary and not hiring, expanding or ordering more inventories until the future becomes more ‘certain.
The additional report commentary:
Uncertainty has cast a cloud over the future for small business owners, making it difficult to make commitments to new spending and hiring. In a recently released NFIB Problems and Priorities survey, owners rated the severity of 75 business issues. Uncertainty about the economy ranked second while uncertainty about government policy ranked fourth. For perspective, securing long term funding was 56th and finding qualified workers 32nd. With a 50/50 election, according to the polls, and very different sets of policies that might be put in place, owners are unwilling to put their own capital on the line until the future path of the economy and economic policy becomes clearer.
MOST IMPORTANT PROBLEM: 2012
1. Rising Cost of Health Care Insurance
2. Uncertainty over Economic Conditions
3. Energy Costs
4. Uncertainty over Government Actions
5. Unreasonable Government Regulations
6. Federal Taxes on Business Income
7. Tax Complexity
8. Frequent Changes in Federal Tax Laws and Rules
9. Property Taxes
10. State Taxes on Business Income
25. Finding Out About Regulatory Requirements
31. Competition from Large Businesses
32. Finding Qualified Employees
56. Obtaining Long-Term Business Loans
Obviously, taxes and regulations are high on the list of concerns of business owners and these are issues that politicians will be addressing as the election approaches. Politicians have little understanding of the costs their actions impose on the private sector. “Frequent changes in the tax code” should not consistently rank in the top 15 problems that owners face.
Labor market indicators remained weak, providing little hope for a recovery in employment. Capital spending plans, inventory investment plans, hiring plans were all soft, so prospects for more rapid growth in GDP are dim unless the election outcome produces euphoria (and more spending) among a significant segment of consumers. Economic activity appears to be driven mostly by population growth; there isn’t much beyond the 1% in growth this produces.
A summary of the survey:
Capital Expenditures: Small-business owners are still in “maintenance mode,” with the frequency of reported capital outlays over the past six months falling 4 points to 51 percent. Of those making expenditures, 34 percent reported spending on new equipment (down 7 points from the previous month), 16 percent acquired vehicles (down 5 points), and 14 percent improved or expanded facilities (unchanged). Four (4) percent of owners acquired new buildings or land for expansion (down 2 points) and 12 percent spent money for new fixtures and furniture (unchanged). Overall, there was a substantial reduction in capital spending activity. The percent of owners planning capital outlays in the next three to six months fell 3 points to 21 percent. While the number of owners who characterized the current period as a good time to expand facilities went up 3 points (seasonally adjusted) to seven percent, this is only half of the 14 percent of owners who said the same in September 2007. The net percent of owners expecting better business conditions in six months rose 4 points to two percent after posting a 6 point improvement last month, albeit still registering a pessimistic collective view. Not seasonally adjusted, 15 percent expect an improvement in business conditions (up 1 point), and 20 percent expect deterioration (down 4 points). A net one percent of all owners expect improved real sales volumes.
Sales: Weak sales continue to be an albatross for the small-business community. The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months was unchanged at a negative 13 percent, cementing the 17 point decline since April and affirming weak GDP growth for the second quarter. Twenty-one (21) percent still cite weak sales as their top business problem—historically high, but down from the record 34 percent reached in March 2010. Seasonally unadjusted, 23 percent of all owners reported higher sales (last three months compared to prior three months, down 1 point) and 30 percent reported lower sales (up 1 point). Consumer spending remains weak and high energy costs continue to “tax” consumer disposable income. The net percent of owners expecting higher real sales was unchanged at one percent of all owners (seasonally adjusted), down 11 points from the year high of net 12 percent in February. The weak reading is unlikely to trigger orders for new inventory or business expansion. Not seasonally adjusted, 24 percent expect improvement over the next three months (down 4 points) and 31 percent expect declines (up 3 points).
Job Creation: Job creation plans showed that small-business owners created fewer jobs in September than in the two previous months. Not seasonally adjusted, 10 percent plan to increase employment at their firm (down 3 points), and 11 percent plan reductions (up 2 points). Seasonally adjusted, the net percent of owners planning to create new jobs fell 6 points to four percent, a historically weak reading, especially in a recovery. Essentially, hiring is keeping up with population growth, but not exceeding it. Seasonally adjusted, 10 percent of the owners reported adding an average of 2.2 workers per firm over the past few months, and 13 percent reduced employment an average of 3 workers. The remaining 77 percent of owners made no net change in employment. Fifty-one (51) percent of the owners hired or tried to hire in the last three months and 41 percent (80 percent of those trying to hire or hiring) reported few or no qualified applicants for open positions. The percent of owners reporting hard to fill job openings fell 1 point to 17 percent of all owners. The only region of the country that saw any positive job growth was the West North Central states, largely because of energy production.