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Small-business Optimism Up Slightly but Owners Remain Uneasy

May 15, 2013 – After last month’s disappointing drop in small-business confidence, April’s Index of Small Business Optimism rose 2.6 points to 92.1, just above the recovery average of 90.7. In April’s report, four Index components rose, two fell and six were unchanged. Yet pessimism abounds within the sector, as still far more of those surveyed expect business conditions to be worse in six months than those who think they will be better.

State-specific data isn’t available, but small-business owners here are no more confident about the recovery that are those in other states, said Kyle Jackson, state director of NFIB/Georgia.

“They’re feeling a little more upbeat than they did a few years ago, when the recession was at its worst, but we’re still a long way from where we need to be,” Jackson said. NFIB is Georgia's leading small-business association, with over 7,000 members representing a cross section of the state's economy.

“Small-business confidence saw an uptick this last month, but it was a ho hum, yawn, at-least-it-didn’t-go-down reading. The sub-par recovery persists for the small business sector,” said NFIB chief economist Bill Dunkelberg. “Economic performance is contradictory—corporate profits are at record levels and the stock market hits new highs, yet GDP growth for the past six months has averaged about 1.5 percent and the unemployment rate is 7.5 percent. Nothing in the NFIB data suggests that the small business half of the economy is expanding other than by an amount driven by population growth and associated new business starts now in excess of terminations. The lack of leadership in Washington and the resulting uncertainty depresses consumers’ and business owners’ willingness to spend and invest, and make bets on the future.”

Owners were asked to identify their top business problem: 23 percent cited taxes, 21 percent cited regulations and red tape and 16 percent still cited weak sales. Only 2 percent reported financing as their top business problem. A quarterly break-out of top business problems by sector will be released next Tuesday.

• Job creation. April was another positive, albeit lackluster month for job creation. Small employers reported increasing employment an average of 0.14 workers per firm in April. This is a bit lower than March’s reading, but still the fifth positive sequential monthly gain. Job creation plans rose 6 points to a net six percent planning to increase total employment.

• Hard-to-fill job openings. Forty-nine percent of owners surveyed hired or tried to hire in the last three months and 38 percent (78 percent of those trying to hire or hiring) reported few or no qualified applicants for open positions. 

• Sales. The net percent of all owners* reporting higher nominal sales in the first quarter of 2013 compared to the fourth quarter of 2012 rose 3 points to a negative four percent, the best reading in 10 months, although there are still more firms reporting declines than those reporting gains. Sales expectations improved 8 points from March to a net four percent.

• Earnings and wages. Earnings trends have been on an upward trajectory but were unchanged in April, holding at a net negative 23 percent. Nineteen percent of small employers reported raising compensation and three percent reported reductions in worker compensation, yielding a net 15 percent reporting higher worker compensation (down 1 point from March). A net nine percent of owners plan to raise compensation in the coming months.

• Credit markets. Thirty-onepercent of owners reported that all their credit needs were met; 50 percent explicitly said they did not want a loan (63 percent including those who did not answer the question, presumably uninterested in borrowing as well). Only six percent of owners reported that all their credit needs were not met, down 1 point and only 2 points above the record low.

• Capital outlays. The frequency of reported capital outlays over the past six months fell 1 point to 56 percent, after rising steadily, albeit by small increments, since January. The frequency of expenditures being made remain at the high end of recession-type readings, consistent with the lack of interest in expansion and the dim outlook for business conditions. The percent of owners planning capital outlays in the next three to six months fell 2 points, with a reported 23 percent planning to make future expenditures.

• Good time to expand. Only four percent of those surveyed characterized the current period as a good time to expand, unchanged from last month and historically a very weak number. Of those who said it was not a good time to expand, 62 percent cited “economic conditions” and 24 percent cited “the political climate.” The net percent of owners expecting better business conditions in six months was a net negative 15 percent, an increase of 13 points over April.

• Inventories. The pace of inventory reduction continued, with a net negative six percent of all owners reporting growth in inventories. For all firms, a net negative 1 percent (unchanged) reported stocks too low, historically a good level of satisfaction with inventory stocks. Plans to increase inventories gained 5 points but rose only to a net zero percent of all firms.

• Inflation. Twenty percent of surveyed NFIB owners reported price increases (up 2 points) and 15 percent reported reducing their average selling prices in the past three months (down 2 points). The net percent of owners raising selling prices was three percent, up 4 points. Twenty-one percent of owners plan to raise average prices in the next few months, and three percent plan reductions, both unchanged from March’s report.

Today’s report is based on the responses of 1,873 randomly sampled small businesses in NFIB’s membership, surveyed throughout the month of April. Download the complete study at http://www.nfib.com/sbetindex.