Analysts were looking for 95.0. Instead the headline came in at 93.9.
WASHINGTON, February 14, 2012 – Rising just one tenth of one per cent in January, the Small-Business Optimism Index settled at 93.9, a slight increase from the December 2011 reading, according to the National Federation of Independent Business (NFIB). While the increase marks five consecutive months of improvement, the readings from January and February 2011 were higher, indicated no net gain for the calendar year. Historically, optimism remains at recession levels. While owners appeared less pessimistic about the outlook for business conditions and real sales growth, that optimism did not materialise in hiring or increased inventories plans.
“The most positive statement that can be made about January’s reading is that the Index did not go down; a change of 0.1 points is essentially no change and it is hardly indicative of a surge in economic activity,” said NFIB Chief Economist Bill Dunkelberg. “Nothing happened last month that would significantly improve the small-business outlook; Washington is at a stalemate. The Index remains below its level a year ago of 94.1 which means that no progress was made in 2011. Congress has failed to pass a budget for over 1,000 days, and without discipline on spending or any budgetary priorities, there is no path to fiscal sanity in Washington. U.S. debt is now larger than our GDP, and headed in the wrong direction. This does not make for a comforting future, a fact reflected by low consumer and small-business owner optimism.”
A retrospective upon the last 12 months of the Index suggests that for small-business owners, 2011 was a “flat” year. While the Index is edging in a positive direction, January 2012’s survey indicates that the economy will continue to crawl along at a slow and weak pace.
Some other highlights of January’s Optimism Index include:
- NFIB reports of job growth improved (0.15) from December, but only to net zero (0) new workers per firm. The Bureau of labour Statistics (BLS) report issued on February 3rd showed relatively strong job creation for January; NFIB’s data suggest that there will be some downward revision in BLS numbers, especially in light of the adjustments in the Household Survey that suggested a huge number of adults left the labour force. Seasonally adjusted, 11 per cent of owners added an average of three workers per firm over the past few months, while 11 per cent reduced employment an average of 2.9 workers per firm. The remaining 78 per cent of owners made no net change in employment. Owners reporting reductions in employment remained relatively low, suggesting that firms are through cyclically adjusting their employment. Reports of workforce reductions are at their lowest level since October 2007. 40-one per cent of owners hired or tried to hire in the past three months, but 31 per cent reported few or no qualified applicants for the position(s). The increase in the per cent of owners with hard to fill job openings indicates that job markets are tightening somewhere, and correctly anticipated a decline in the unemployment rate.
- The frequency of firms that reported making capital expenditures over the past six months lost one point, declining to 55 per cent, but still retaining the solid gain posted in December. The record low of 44 per cent was reached most recently in August 2010. Of those making expenditures, 38 per cent reported spending on new equipment (down 4 points), 20 per cent acquired vehicles (unchanged), and 13 per cent improved or expanded facilities (unchanged). Six per cent acquired new buildings or land for expansion (up 1 point) and 11 per cent spent money for new fixtures and furniture (down 2 points). While the spending picture has improved, it still falls short of “normal”. The per cent of owners planning capital outlays in the next three to six months held at 24 per cent; this is the highest reading in years, but still 10 points lower than those typically seen in an expanding economy.
- The net per cent of owners expecting better business conditions in six months was a negative 3 per cent, 5 points better than December but still 13 percentage points below last year’s reading. Not seasonally adjusted, 18 per cent expect deterioration (down 4 points), and 22 per cent expect improvement (up 7 points). A net 10 per cent of all owners expect improved real sales volumes, up 1 point and the strongest reading since the beginning of the year. 20-two per cent report “poor sales” as their top business problem, down 1 point, but still the top business problem reported.
PLAN TO INCREASE EMPLOYMENT
PLAN TO INCREASE CAP. OUTLAYS*
PLAN TO INCREASE INVENTORIES
EXPECT ECONOMY TO IMPROVE
EXPECT HIGHER REAL SALES
CURRENT INVENTORY SATISFACTION
CURRENT JOB OPENINGS*
EXPECTED CREDIT CONDITIONS
NOW A GOOD TIME TO EXPAND*
*Note: These components are measured as actual percentages of all respondents and are not net percentages. A net percentage is the per cent positive minus per cent negative.
- Increasing 3 points over December, a net negative 7 per cent of all owners (seasonally adjusted) reported growth in their inventories. January marks 56 consecutive months during which reported inventory reductions have outnumbered reported increases. Unadjusted, 11 per cent reported growth in inventory stocks (unchanged) and 22 per cent reported inventory reductions (up 1 point). More owners reported weaker sales quarter on quarter than improvements, so demand can be met by reducing inventories on hand. Overall, it appears that small-business owners have reduced inventories to acceptable levels given the outlook for sales growth. Without improved sales, there is little motivation to order new inventory stocks. Plans to add to inventories dropped 5 points, arriving at a disappointing net negative 3 per cent of all firms (seasonally adjusted). This drop is notable because December’s reading was the best in 18 months.
- Eighteen per cent of the NFIB owners reported raising their average selling prices in the past three months (up 1 point), and 17 per cent reported price reductions (down 1 point). Seasonally adjusted, the net per cent raising selling prices was -1 per cent, down a point from December. The frequency of price increases was highly concentrated in the Wholesale (a net 14 per cent raised prices) and Retail (net 4 per cent raised). Those cutting prices exceeded those raising prices by 14 percentage points in Construction and Agriculture, largely a result of seasonal impact. 20-three (23) per cent of owners plan to raise average prices in the next few months, while 3 per cent plan reductions. Seasonally adjusted, a net 17 per cent plan price hikes up 3 points. With some evidence that spending has picked up, some of these price hikes might stick.
Today’s report is based on the responses of 2,155 randomly sampled small businesses in NFIB’s membership, surveyed throughout the month of January. Download the complete study at http://www.nfib.com/sbetindex.