The NFIB small business optimism index fell unexpectedly to 91.9, down 2.6 point, for the month of March.
Index was driven by weaker expectations for real sales gains and business conditions and a marked deterioration in profit trends. The decline in the per cent of owners expecting higher real sales and better business conditions in six months alone account for 76 per cent of the decline in the Index.
While this slight fall was unexpected, the rise in prices continues to be the big concern.In March, a net 9 per cent reported raising average selling prices, a gain of 33 percentage points from the low reading in 2009 and 20 points more than last September! Inflation is back on Main Street. In March, 24 per cent planned hikes in average selling prices with many by 10 per cent or more. A major force behind the price hikes is the elimination of inventory excesses which appeared in 2008 when consumers decided to raise their saving rate from 1 per cent to about 6 per cent, a reduction in consumption spending of about half a trillion dollars. The “fire sale” is over and profits are badly in need of some price support. Note that these hikes started before higher gas and energy prices became a real issue except for transportation firms and those with delivery services. Plans to raise prices rose 3 points to a net seasonally adjusted 24 per cent of owners, the highest reading in 30 months. With an improving economy, more and more of these hikes will “stick”.
But we’re still only seeing the beginnings of wage inflation that would influence the FOMC.
Seasonally adjusted, a net 7 per cent reported raising worker compensation, down 1 point. But reported gains in the first quarter are the strongest since the fourth quarter of 2008. A seasonally adjusted 9 per cent plan to raise compensation, up 2 points and the highest reading since November 2008.
And the NFIB admits the weakness in the small business recovery is not about banks not lending.
Although the rhetoric in Washington continues to suggest that a major reason for the slow recovery has been that banks will not lend to credit- worthy borrowers, the evidence from the NFIB survey of hundreds of thousands of small firms suggests that this is not the case…
Community banks across the country report that they have money to lend, but the pipeline of good applicants collapsed in the recession as the NFIB data show. Only a few firms complain that all their credit needs were not met. More than half do not even want a loan.
The big story, visualized, with prices continuing to climb while the optimism index falls.