WASHINGTON – The National Federation of Independent Business (NFIB) Small Business Optimism Index rose 0.3 in October to 93.1; the slight uptick in the reading did not seem to indicate a dramatic shift in owner sentiment over the course of the month. The survey, conducted before the presidential election, found that the percent of owners uncertain about whether business conditions will be better or worse in six months, was at a record high (23 percent). This eclipsed the pre-recession record of 15 percent reached during the Carter Administration. NFIB’s forward labor market indicators weakened last month, and owner views of the future do not foresee much improvement in economic growth.
“While four of ten survey components rose, the Index still remains in solidly pessimistic—and recessionary--territory,” said NFIB chief economist William Dunkelberg. “In the 40 months since the alleged ‘recovery’ started in July 2009, the Index has never exceeded a reading of 95; the pre-recession average for the Index is 100. The election is over and Washington looks much like it did on November 5th. The fear of stalemate among the small-business community is palpable, as the looming fiscal cliff and the threat of higher costs and more taxes are very real possibilities come January. Until then, not knowing the direction of the economy will always have a dampening impact on spending and hiring.”
One indicator that rose slightly in October is the frequency of reported capital outlays in the past six months, increasing 3 points to 54 percent. Similarly, the percent of owners planning capital outlays in the next three to six months rose one point to 22 percent. These positive changes, however, are unlikely a sign that capital spending might return to levels more consistent with past recovery periods, as only seven percent characterized the current period as a good time to expand facilities. The net percent of owners expecting better business conditions in six months was also unchanged at a net two percent.
Some other highlights of October’s Optimism Index include:
- Sales: Weak sales is still the reported No. 1 business problem for 22 percent of owners surveyed. The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months is negative 15 percent, 2 points worse than September, confirming the weak growth in non-durable consumer spending in the third quarter. The five year high of a net four percent was reached in April. Seasonally unadjusted, 18 percent of all owners reported higher sales (last three months compared to prior three months), down 5 points and 29 percent reported lower sales, down 1 point. Consumer spending remains weak and high energy costs diminish consumer disposable income. The net percent of owners expecting higher real sales rose 2 points to three percent of all owners (seasonally adjusted), down nine points from the year high of net 12 percent in February. Not seasonally adjusted, 25 percent expect improvement over the next three months (up 1 point) and 34 percent expect declines (up 3 points).
- Job Creation: October was another weak job creation month, though better than September due primarily to a reduction in terminations which will raise the net jobs number. According to the October survey, owners stopped releasing workers; the average change in employment per firm rose to just 0.02 workers—essentially zero. While this development ends a four-month run of employment reductions (September’s number was a seasonally adjusted -0.23), national employment is still 4 million lower than it was in 2008 (first quarter). Seasonally adjusted, 11 percent of the owners reported adding an average of 2.7 workers per firm over the past few months, and 10 percent reduced employment an average of 2.9 workers. The remaining 79 percent of owners made no net change in employment. Forty-eight (48) percent of the owners hired or tried to hire in the last three months and 38 percent reported few or no qualified applicants for open positions. The percent of owners reporting hard to fill job openings fell one point to 16 percent of all owners, the second monthly decline in a row. Twelve (12) percent have openings for skilled workers, two percent for unskilled and three percent for both. Job creation plans remained weak, with a net four percent planning to increase employment, unchanged from September and 6 points below the August reading. Not seasonally adjusted, 10 percent plan to increase employment at their firm (unchanged), but 12 percent plan reductions (up 1 point).
- Credit Markets: Access to credit continues to be low of the list of small-business owner concerns. Twenty-eight (28) 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). Eight percent of those surveyed reported that all their credit needs were not met, and only three percent reported that financing was their top business problem. Thirty (30) percent of all owners reported borrowing on a regular basis, down 1 point from September. A net seven percent reported loans “harder to get” compared to their last attempt (asked of regular borrowers only), which is up 1 point from September. Three percent of owners reported higher interest rates on their most recent loan, while another three percent reported getting a lower rate. The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted negative eight percent (more owners expect that it will be “harder” to arrange financing than easier), down 1 point from September.
Today’s report is based on the responses of 2,029 randomly sampled small businesses in NFIB’s membership, surveyed throughout the month of October. Download the complete study at http://www.nfib.com/sbetindex.