By Jeffrey Green (@epaymentsguy)
Small-business owners in March were slightly more optimistic about their future than they were a month earlier, but the increase essentially erased a decline in February, with few signs improvement will continue, according to the latest Small Business Optimism Index from the NFIB Research Foundation released April 8
The index in March rose 2 points to 93.4. Though up from the previous month, the index failed again to breach the 95 ceiling that has capped the Index during the recovery. Six of the Index components improved, two were unchanged, and two were lower, NFIB said.
NFIB based its March index on the responses of 685 randomly sampled small businesses in its membership, surveyed throughout the month of March. Click here for a copy of the complete study.
“While the Index still can’t seem to get above 95, we can be encouraged that the economy is at least crawling forward and not heading in reverse,” NFIB chief economist Bill Dunkelberg, said in a statement. The outlook for real sales gains accounted for about half of the improvement, with inventory satisfaction and inventory investment plans accounting for most of the rest, he said.
“However, throughout this recovery we’ve seen these types of increases only to have them go nowhere,” Dunkelberg said. “As long as Washington continues to ignore policies that could restore the middle class, job creation will continue to be sub-par.”
How the March indicators faired
Labor Markets. NFIB owners increased employment by an average of 0.18 workers per firm in March (seasonally adjusted), an improvement over February’s 0.11 reading and the sixth positive month in a row.
Weather may have affected some of the data, but some of the best job producing areas, the Southwest and West and Florida, did not have weather problems. As spring rolls in, a better picture of the underlying strength of our labor markets will be revealed, NFIB said.
The remaining 77 percent of owners made no net change in employment. Forty-nine percent of the owners hired or tried to hire in the previous three months, and 41 percent reported few or no qualified applicants for open positions.
Job Creation. Twenty-two percent of all owners reported job openings they could not fill in the current period, a rate unchanged from February. Thirteen percent reported using temporary workers, also unchanged, NFIB said.
Sales. The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the previous three months compared with the prior three months improved 2 points to a net negative 6 percent. Fourteen percent cited weak sales as their top business problem, high but approaching levels experienced in “normal” times, NFIB said.
Expected real sales volumes posted a strong 9-point gain, rising to a net 12 percent of owners. While still a historically weak reading, it is one of the very best in this recovery, which has been tepid for years, NFIB said.
Earnings and Wages. Earnings trends improved 3 points to a net negative 24 percent (net percent reporting quarter-to-quarter earnings trending higher or lower). Rising labor costs are keeping pressure on earnings. Two percent reported reduced worker compensation, and 25 percent reported raising compensation, yielding a seasonally adjusted net 23 percent reporting higher worker compensation (up 4 points), the best readings since 2008, NFIB said. A net seasonally adjusted 14 percent plan to raise compensation in the coming months, unchanged from February and the strongest reading since 2008 as well. The reported gains in compensation are now solidly in the range typical of an economy with solid growth.
“Hopefully this is a good sign,” NFIB said in its index release. “With a net 23 percent raising compensation but a net 9 percent raising selling prices, it is easy to see why profits remain under pressure. The issue is how much of the gains are in benefits rather than take-home pay.”
Credit Markets. Credit continues to be a non-issue for small employers. In March, only 5 percent of owners reported that all their credit needs were not met, 1 point above the record low, NFIB said. Thirty percent reported all credit needs met, and 48 percent explicitly said they did not want a loan. Only 2 percent reported that financing was their top business problem compared to 21 percent citing taxes, 21 percent citing regulations and red tape and 14 percent citing weak sales.
Capital Outlays. The percent of owners planning capital outlays in the next three to six months fell 1 point to 24 percent. Eight percent characterized the current period as a good time to expand facilities, up 2 points from February. Of the 58 percent of owners who said it was a bad time to expand, 22 percent still blamed the political environment, suggesting that at least for these owners, politicians are preventing their spending on expansion by failing to resolve or exacerbate important businesses issues including the healthcare law, taxes, regulations and red tape, minimum wage, etc., NFIB said.
Inventories The pace of inventory reduction picked up speed, with a net negative 6 percent of all owners reporting growth in inventories (seasonally adjusted), 4 points lower than February. Reductions are good if in response to strong sales, but not so good if it is in response to weak sales. Owners are satisfying orders with existing inventory but not ordering new stocks, NFIB said.
The net percent of owners viewing current inventory stocks as “too low” rose 4 points to a net 0 percent, a positive development. Sales trends did improve a bit, although remained historically weak and probably not enough to substantially reduce inventories, NFIB said.
Inflation. Twelve percent of the NFIB owners reported reducing their average selling prices in the past 3 months (down 3 points from February), and 23 percent reported price increases (up 4 points). Seasonally adjusted, the net percent of owners raising selling prices was a net 9 percent, up 8 points. Only 3 percent planned reductions (unchanged), far fewer than actual reported reductions. Seasonally adjusted, a net 19 percent plan price hikes (down 4 points). If successful, the economy may see a bit more “inflation.”