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Small business optimism in January was slightly up from December at 94.1 but well below the pre-recession average of 100, according to the National Federation of Independent Business’ latest index. Owners were more positive about their own sales (up 7 percentage points in positive expectations) and plan more hiring, with the strongest job creation plans since 2007.
Owners continue to find inventories “too high” and sales and earnings trends continued to deteriorate for more owners. Overall, the Index is just treading water.
“Employment starts 2014 over a million below its peak in January 2008 and prospects for a major recovery in jobs are not good,” said NFIB chief economist Bill Dunkelberg. “NFIB labor market indicators have recently seen a return to normal (but not expansion) levels, encouraging in that reversals are now less likely. The average increase in workers per firm has also risen in recent quarters, indicating new job creation. However, there are far fewer firms hiring workers than there were in 2007 and many of those still in existence have downsized.
"As the midterm elections heat up, economic policy will be dominated by campaigning, not sensible strategies to improve economic growth and job creation. This will, barring a surge in economic activity undoubtedly worsen unemployment and job opportunities in the future,” he said.
NFIB owners increased employment by an average of 0.12 workers per firm in January (seasonally adjusted), half the December reading. Seasonally adjusted, 13 percent of the owners (down 1 percentage point) reported adding an average of 3.7 workers per firm over the past few months. Offsetting that, 11 percent reduced employment (up 1 point) an average of 3.3 workers, producing the seasonally adjusted net gain of 0.12 workers per firm overall.
Forty-six percent of owners hired or tried to hire in the last three months and 38 percent (83 percent of those trying to hire or hiring) reported few or no qualified applicants for open positions.
Twenty-two percent of all owners reported job openings they could not fill in the current period (down 1 point). This suggests that the unemployment rate did not change much in January. Fourteen percent reported using temporary workers, unchanged from December.
The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months compared to the prior three months deteriorated 2 points to a net negative 10 percent. Fourteen percent cite weak sales as their top business problem, the lowest reading since June 2008. Seasonally unadjusted, 20 percent of all owners reported higher sales (last three months compared to prior three months, up 2 points) and 34 percent reported lower sales (up 6 points).
Earnings trends worsened 5 points in January, falling to a net negative 27 percent (net percent reporting quarter to quarter earnings trending higher or lower). Not seasonally adjusted, 15 percent reported profits higher quarter to quarter (down 1 point), and 43 percent reported profits falling (down 6 points), tracking the disappointing sales reports.
Credit continues to be a non-issue for small employers; 5 percent of owners reported that all their credit needs were not met, 1 point above the record low. Thirty-one percent reported all credit needs met, and 52 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 2 percent reported that financing was their top business problem compared to 24 percent citing taxes, 22 percent citing regulations and red tape and 14 percent citing weak sales.
The percent of owners planning capital outlays in the next three to six months fell 2 points to 24 percent. Of those who said it was a bad time to expand (59 percent), 27 percent still blamed the political environment, suggesting that at least for these owners, Washington is preventing their spending on expansion.
The net percent of owners expecting better business conditions in 6 months was a net negative 11 percent, unchanged from December. Not seasonally adjusted, 19 percent expected an improvement in business conditions (up 2 points), and 23 percent expect deterioration (down 4 points). A net 15 percent of all owners expect improved real sales volumes, up 7 points.
The pace of inventory reduction continued, with a net negative 4 percent of all owners reporting growth in inventories (seasonally adjusted). The net percent of owners planning to add to inventory stocks was a net negative 3 percent (down 1 point), indicating little appetite to add to stocks already viewed as excessive relative to sales expectations.
Thirteen percent of the NFIB owners reported reducing their average selling prices in the past 3 months (down 2 points), and 17 percent reported price increases (up 4 points).
Download the complete study from the National Federation of Independent Business.