posted on 10 May 2016
from the National Federation of Independent Business
The Index of Small Business Optimism increased 1.0 points after months of (small) declines, rising to 93.6. Five of the 10 Index components posted a gain, four were unchanged and one posted a small decline. Owners remain very pessimistic about the economy. It was a relief though to see the Index turn up, ending a long string of declines. However, it's still down from December 2014 when the Index hit an expansion high of 100.
Half of the gain came in the two labor market components, an encouraging development. The market was expecting the index between 92.5 to 93.5 with consensus at 93.1 - versus the actual at 93.6.
NFIB chief economist Bill Dunkelberg states:
Some other highlights of this Optimism Index include:
Optimism Index. The Index of Small Business Optimism increased 1.0 points after months of (small) declines, rising to 93.6. Five of the 10 Index components posted a gain, four were unchanged and one posted a small decline. Owners remain very pessimistic about the economy. It was a relief though to see the Index turn up, ending a long string of declines. However, it's still down from December 2014 when the Index hit an expansion high of 100. Half of the gain came in the two labor market components, an encouraging development.
Labor Markets. Fifty-three percent reported hiring or trying to hire (up 5 points), but 46 percent reported few or no qualified applicants for the positions they were trying to fill. Hiring activity increased substantially, but apparently the "failure rate" also rose as more owners found it hard to identify qualified applicants. Twelve percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem, unchanged from earlier months and a high reading for this recovery period. Twenty-nine percent of all owners reported job openings they could not fill in the current period, up 4 points, revisiting the highest level for this expansion. Thirteen percent reported using temporary workers, up 3 points. A seasonally adjusted net 11 percent plan to create new jobs, up 2 points from March.
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 by 2 points to a net negative 6 percent, a poor reading even if improved. Eleven percent cited weak sales as their top business problem, down 2 points. Overall, this is not a strong sales picture, although slightly better than March. Seasonally adjusted, the next percent of owners expecting higher real sales volumes was unchanged at a net 1 percent of owners, a weak showing. This is well below the average 14 point reading in the first three months of 2015. The net percent of owners reporting inventory increases improved 2 points to a net negative 5 percent (seasonally adjusted), a weak reading. The net percent of owners viewing current inventory stocks as "too low" was unchanged at a net negative 5 percent. The net percent of owners planning to add to inventory increased 2 points to a net 0 percent. These weak inventory investment readings are consistent with the rather dismal view owners have about future sales and economic progress.
Capital Spending. Sixty percent reported capital outlays, up 1 point. Overall, capital spending reports were more frequent but there was little new strength in spending. The percent of owners planning capital outlays in the next 3 to 6 months remained unchanged at 25 percent. Seasonally adjusted, the net percent expecting better business conditions fell 1 percentage point to a net negative 18 percent. The seasonally adjusted net percent expecting higher real sales was unchanged at 1 percent of all owners, not very strong. Clearly, expectations for the economy are not conducive to a meaningful improvement in business investment.
Inflation. In spite of the Fed's best efforts to generate inflation for the past seven years (an event most consumers would not want), inflationary pressures remain dormant on Main Street. Seasonally adjusted, the net percent of owners raising selling prices was negative 1 percent, after three months at a negative 4 percent. More evidence that the Fed's policies aimed at producing inflation are not working. Seasonally adjusted, a net 16 percent plan price hikes (down 1 point). Prospects for a resurgence of inflation are low, and that's a good thing.
Profits and Wages. A seasonally adjusted net 24 percent of owners reported raising worker compensation, up 2 points. The net percent planning to increase compensation fell 1 point to a net 15 percent. Overall, the percent of owners reporting that they raised worker compensation remains high for this recovery while the net percent of owners raising prices remains negative, indicating that these costs are not being passed on to customers. Earnings trends actually improved 3 points to a negative 19 percent reporting quarter on quarter profit improvements.
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 (unchanged), and 52 percent explicitly said they did not want a loan. Only 2 percent reported that financing was their top business problem compared to 21 percent citing taxes. Twenty-nine percent of all owners reported borrowing on a regular basis, down 3 points. The average rate paid on short maturity loans increased 50 basis points to 5.7 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 6 percent, unchanged from March. 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.
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