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NFIB: Downturn Over But Small Business Challenged

October 12, 2010 By: Staff

“The downturn may be officially over, but small business owners have for the most part seen no evidence of it,” said National Federation of Independent Business (NFIB), Chief Economist Bill Dunkelberg as the NFIB released its Index of Small Business Optimism for September. The index gained 0.2 points rising to 89. The NFIB Index has been below 93 every month since January 2008 (32 months), and below 90 for 26 of those months, all readings typical of a weak or recession-mired economy, the non-profit, non-partisan group reports. Shortfalls in sales and widespread price cutting ranks among the key problems, NFIB says.

Dunkelberg said that the problems of small business owners were compounded by uncertainty over government policy on important issues such as extending current tax rates. He notes that consumer sentiment has fallen and that “owner optimism remained anchored solidly in recession territory. Owners won’t make spending commitments when sales prospects remain weak and decisions such as tax rates and labor costs remain so uncertain.” The September survey is based on 849 small business owner respondents.

The NFIB reports that average employment growth per firm was negative 0.26, and has been negative in all but two months since January 2008. Eleven percent (seasonally adjusted) reported unfilled job openings, unchanged from August and historically very weak. Over the next three months, 8 percent plan to increase employment (unchanged), and 16 percent plan to reduce their workforce (up three points), yielding a seasonally adjusted net-negative 3 percent of owners planning to create new jobs, down four points from August, an unexpected reversal in job creation prospects.

The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months lost a point, falling to a net-negative 17 percent, 17 points better than June 2009 (the recession bottom) but still indicative of very weak customer activity. Unadjusted, 23 percent of all owners reported higher sales (last three months compared to prior three months, down two points) while 34 percent reported lower sales (up one point). Widespread price-cutting continued to contribute to reports of lower nominal sales.

The net percent of owners expecting higher real sales lost three points from August, falling to a net-negative 3 percent of all owners (seasonally adjusted) – a dismal outlook. Not seasonally adjusted, 26 percent expect improvement over the next three months, 37 percent expect declines.

The weak economy continued to put downward pressure on prices, NFIB reports. Twelve percent of the owners (down 2 points) reported raising average selling prices, and 24 percent reported average price reductions (up 1 point). Seasonally adjusted, the net percent of owners raising prices was a negative 11 percent, a 3 point decline. September is the 22nd consecutive month in which more owners reported cutting average selling prices that raising them. Widespread price-cutting contributes to the high percentage reporting declining sales revenues.

A net-negative 33 percent of owners reported positive profit trends, deteriorated three points in September and 29 points worse than the best expansion reading reached in 2005. The persistence of this imbalance is bad news for the small business community. Profits are important for the support of capital spending and expansion. Not seasonally adjusted, 16 percent reported profits higher (down two points), but 45 percent reported profits falling, a three point increase.

Owners continued hold the line on compensation, with 7 percent reporting reduced worker compensation and 10 percent reporting gains. Seasonally adjusted, a net 3 percent reported raising worker compensation, only five points better than February’s record low reading of negative 2 percent.

Only 3 percent reported financing as their number one business problem. However, 30 percent of the owners reported weak sales as their top business problem, followed by 23 percent citing taxes and 16 percent government regulations.



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