posted on 08 March 2016
from the National Federation of Independent Business
The National Federation of Independent Business's (NFIB) optimism index fell 1 point in February to the lowest reading in two years, with six of the 10 indices declining and four remaining unchanged, The market was expecting the index between 92.4 to 94.6 with consensus at 94.2 - versus the actual at 92.9.
NFIB chief economist Bill Dunkelberg states:
Some other highlights of this Optimism Index include:
Optimism Index. The Index of Small Business Optimism fell 1 point from January, falling to 92.9. None of the 10 Index components posted a gain, six posted small declines, and four were unchanged. Overall, a "ho hum" outcome, confirming that the small business sector is not headed up with any strength, just treading water waiting for a good reason to invest in the future. Spending and hiring plans weakened a bit as expectations for growth in real sales volumes fell. Earnings trends worsened a bit as owners continued to report widespread gains in worker compensation while holding the line on price increases. The political climate continued to be the second most frequently cited reason for the current period being a bad time to expand.
Labor Markets. Reported job creation reversed in February, with an average employment change per firm falling to a decline in employment of -0.12 workers per firm. The employment question "looks back" over the prior three months, likely reflecting some of the poor GDP performance in the fourth quarter. Forty-nine percent reported hiring or trying to hire (down 3 points), but 42 percent reported few or no qualified applicants for the positions they were trying to fill. The percent of owners citing the difficulty of finding qualified workers as their Single Most Important Business Problem fell 3 points to 12 percent. Twenty-eight percent of all owners reported job openings they could not fill in the current period, down 1 point from the highest level for this expansion. Ten percent reported using temporary workers, down 4 points. A seasonally adjusted net 10 percent plan to create new jobs, down 1 point from January, 5 points from December.
Inventory and Sales. The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past 3 months compared to the prior 3 months improved 1 point, rising to a net negative 6 percent on the back of a solid January consumer spending number. Eleven percent cited weak sales as their top business problem, down 1 point. Overall, this is not a strong sales picture. Expected real sales volumes posted a 3 point loss, falling to a seasonally adjusted net 0 percent of owners expecting gains. This is well below the average 14 point reading in the first three months of 2015. Owners aren't expecting a very energetic opening to the year. The net percent of owners reporting inventory increases was a net negative 3 percent (seasonally adjusted), a 1 point deterioration. The net percent of owners viewing current inventory stocks as "too low" was unchanged at a net negative 2 percent. The net percent of owners planning to add to inventory was unchanged at a net negative 1 percent. With weak expectations for sales and business conditions, owners see no need to add to current stocks.
Capital Spending. Fifty-eight percent reported capital outlays, down 3 points. Overall, capital spending weakened again in February. The percent of owners planning capital outlays in the next 3 to 6 months fell 2 points to 23 percent. Clearly, expectations for the economy are not conducive to an improvement in business investment.
Inflation. Nineteen percent of the NFIB owners reported reducing their average selling prices in the past three months (up 1 point), and 15 percent reported price increases (up 2 points). Seasonally adjusted, the net percent of owners raising selling prices was negative 4 percent, unchanged from January. Obviously more evidence that the Fed's policies aimed at producing inflation are not working. A recovery in spending is the only way to create inflation, with spending demands pressing against short run supply. Zero or negative interest rates are not the answer, creating fear and uncertainty among owners rather than stimulating spending. Nineteen percent plan on raising average prices in the next few months while only 3 percent plan reductions (down 1 point), far fewer than actually report reductions. Seasonally adjusted, a net 14 percent plan price hikes (down 2 points).
Earnings and Wages. A seasonally adjusted net 22 percent of owners reported raising worker compensation, down 5 points from the expansion high level reached in January. The net percent planning to increase compensation fell 3 points to a net 12 percent. Clearly owners are not passing these costs on through higher prices. Perhaps energy savings are providing some cushion for the adverse impact of higher compensation on the bottom line. Earnings trends worsened 3 points to a negative 21 percent reporting quarter on quarter profit improvements. Far more owners are reporting profits lower quarter to quarter than higher.
Credit Markets. Four percent of owners reported that all their borrowing needs were not satisfied, 2 points above the record low reached in September 2015. Thirtyone percent reported all credit needs met (down 4 points), and 52 percent explicitly said they did not want a loan. Thirty-one percent of all owners reported borrowing on a regular basis, down 2 points. The average rate paid on short maturity loans fell 10 basis points to 5.3 percent. Loan demand remains historically weak, owners can't find many good reasons to borrow to invest when expectations for growth are not very positive. The net percent of owners expecting credit conditions to ease in the coming months was a negative 7 percent, unchanged. Interest rates are low, but prospects for putting borrowed money profitably to work have not improved enough to induce owners to step up their borrowing and spending. With a quarter of all owners expecting business conditions to deteriorate, prospects for an improvement in loan demand are low.
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