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Report Finds Small Business Prospects Looking Dim for Next Six Months

NationalMortgageProfessional.com
Aug 14, 2012

Dipping for a second consecutive month, after ending several months of slow growth, the Small Business Optimism Index gave up 0.2 points, falling to 91.2. The decline, while less anticipated given the Supreme Court decision on the health-care law and a flurry of activity surrounding the fiscal cliff, still leaves owner optimism disturbingly low and at recession levels. The Index has oscillated between 86.5 (July 2009) and 94.5 (February 2012) since the recession officially ended in June 2009. Prior to 2008, the Index averaged 100, well above the current reading. During the economic recovery, now three-years-old, the Index has averaged 90, making this the worst recovery period from a recession in the NFIB survey history (which began in 1973). The report is based on the responses of 1,803 randomly sampled small businesses in NFIB’s membership, surveyed throughout the month of July. “Congress has recessed without a plan to resolve our calamitous debt/spending cycle or a lasting answer to our dangerous fiscal cliff,” said NFIB chief economist William Dunkelberg. “Meanwhile, the White House has presented us with some ‘fuzzy math,’ asserting that only three percent of small businesses will be impacted by planned tax increases. That’s not true. The denominator in that calculation is wrong—it should be the six million employer firms that provide jobs to half the private sector workforce, meaning that more like 15 percent of small businesses can expect higher taxes in January. The lack of meaningful actions to address tax reform in Washington adds to the certainty of sluggish growth for the remainder of 2012, and the uncertainty of what will come in 2013.” According to July’s report, more owners indicated that they expect business conditions will be worse (and not improved) in six months, and more owners expect real sales volumes to be lower than those who expect them to be higher in three months. This in part explains the lack of any need to hire more workers or to buy new inventory. Job creation plans are historically very low; only five percent of owners think the current period is a good time to expand. Some other highlights of July’s Optimism Index include: Capital expenditures: The frequency of reported capital outlays over the past six months gained two points to 54 percent, still failing to get out of the rut they have been stuck in since early 2008. In 2007, an average of 60 percent reported making capital outlays. So, it appears that spending remains in “maintenance” mode. Of those making expenditures, 38 percent reported spending on new equipment (up one point), 19 percent acquired vehicles (up one point), and 14 percent improved or expanded facilities (up three points). Six percent acquired new buildings or land for expansion (up one point) and 10 percent spent money for new fixtures and furniture (down three points). Overall, the stats are consistent with the sluggish performance of the economy. The percent of owners planning capital outlays in the next three to six months was unchanged at 21 percent, a dispiriting result. Only five percent characterized the current period as a good time to expand facilities (seasonally adjusted) in contrast to 10 percent last December and 28 percent in December 2004, just to illustrate how weak the current reading is. The net percent of owners expecting better business conditions in six months was a negative eight percent, a two point improvement. Twenty percent reported “poor sales” as their top business problem, down three points. Overall, the outlook is not conducive to a lot of new capital spending or hiring. Sales: While “poor sales” has been eclipsed by other concerns as the top business problem, it still remains the top issue for 20 percent of the owners surveyed. Consumer spending remains weak. The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months lost four points, falling to negative nine percent, this after a seven point decline in June. The five year high of a net four percent was reached in April. The low for the cycle was a net negative 34 percent, set in July 2009. The net percent of owners expecting higher real sales lost one point, falling to a net negative four percent of all owners (seasonally adjusted), producing a five month decline of 16 percentage points. What looked like the beginning of a recovery in sales and expectations has fizzled, very similar to what occurred in 2011. Job creation: July looked a lot like June in terms of job growth—namely, it was negative. The reported net change in employment per firm over the past few months (seasonally adjusted) was -0.04; not as poor as June’s -0.11, but still negative at a time when growth is needed. Readings had been on the rise; from December to May they were zero or positive, suggesting that employment might be turning around. But June, and now July, have ended that possibility. Seasonally adjusted, 10 percent of owners surveyed added an average of 3.0 workers per firm over the past few months, but 11 percent reduced employment an average of 2.3 workers. The remaining 79 percent of owners made no net change in employment. Forty-eight percent of owners hired or tried to hire in the last three months, and 38 percent reported few or no qualified applicants for positions. Overall, there was no meaningful job creation. The percent of owners reporting hard to fill job openings held steady at 15 percent of all owners after falling five points in June; May’s reading was the best in 47 months. Historical perspective: When comparing some of the July report’s numbers to those surveyed in 2000, arguably the best economy in history, a stark contrast is drawn, particularly after three years of recovery and alleged expansion. A record 70 percent of owners reported capital spending in the prior six months in the January 2000 survey compared to 54 percent in July 2012. The percent of owners with a job opening peaked at 34 percent in 2000 compared to 15 percent today. A record 19 percent planned to create new jobs late in 1999 compared to five percent today. More than a quarter of owners (28 percent) thought it was a good time to expand (December 1999) compared to five percent today.
Published
Aug 14, 2012
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