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The NFIB Small Business Optimism Index increased 1.9 points in February to 90.8. While an improvement over the past several reports, the Index remains on par with the 2008 average and below the trough of the 1991-92 and 2001-02 recessions. The NFIB is the National Federation of Independent Business.
The direction of February’s change is positive, but not indicative of a surge in confidence among small-business owners, according to the NFIB. Of the 10 Index components, one fell, one remained unchanged and eight improved. Most notably, the gains in capital spending and inventory investment plans were large, but by historical standards the levels remain very low.
“While the Fortune 500 are enjoying record high earnings, Main Street earnings remain depressed,” Chief Economist Bill Dunkelberg said. “Three-quarters of small-business owners think that business conditions will be the same or worse in six months. The Index gained almost 2 points last month; that was good news. But, until owners’ forecast for the economy improves substantially, there will be little boost to hiring and spending from the small business half of the economy.”
Other highlights of February’s Optimism Index include:
Sales: Weak sales is still the top business problem for 18 percent of owners. The net percent of owners (seasonally adjusted) reporting higher nominal sales over the past three months was unchanged in February, at a negative 9 percent. There are still far more owners reporting declining sales than reporting positive sales trends.
Seasonally unadjusted, 19 percent of all owners reported higher sales (last three months compared to prior three months, unchanged) and 33 percent reported lower sales (up 1 point). Consumer spending remains weak, especially on services although durable goods sales have recently shown some strength. The net percent of owners expecting higher real sales volumes rose 2 points to 1 percent of all owners (seasonally adjusted), 11 points below the 2012 cycle high of a net 12 percent reached in February, 2012. Not seasonally adjusted, 33 percent expect improvement over the next three months (up 8 points) and 24 percent expect declines (down 8 points). While sales trends improved, they are still weak when viewed through historical context.
Earnings and Wages: Earnings trends were unchanged from January’s reading of a net negative 26 percent. Not seasonally adjusted, 13 percent of small employers reported profits higher quarter to quarter (unchanged), and 43 percent reported profits falling (up 3 points).
Three percent of small employers reported reduced worker compensation and 19 percent reported raising compensation, yielding a seasonally adjusted net 14 percent of businesses reporting higher worker compensation (up 1 point). Seasonally adjusted, a net 8 percent plan to raise compensation in the coming months, up 1 point.
Credit Markets: Small business demand for credit remained weak in February, given the weak economy. Only 7 percent of owners surveyed reported that all their credit needs were not met, up 1 point but only 3 points above the record low. Twenty-nine percent reported all credit needs met, and 51 percent explicitly said they did not want a loan (64 percent including those who did not answer the question, presumably uninterested in borrowing as well). Only two percent of owners reported that financing was their top business problem.
Twenty-nine percent of all owners reported borrowing on a regular basis, down 2 points and 1 point shy of the record low of 28 points set in November 2010. A net 7 percent of owners reported that loans are “harder to get” compared to their last attempt (asked of regular borrowers only), unchanged from January, though it is now one in four of those in the market. The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted negative 8 percent (more owners expect that it will be “harder” to arrange financing than easier), 1 point better than in January.