NFIB Reports “Stagnant” Small Business Optimism

The latest release  of the National Federation of Independent Businesses (NFIB) Index of Small Business Optimism shows a 0.1 percentage point decrease to 94.4. The Index current position sits at the lowest level since the survey’s introduction in 1974. The current data survey places emphasis on the gross domestic product –the production of goods and services, and employment growth and at a pace well below the standard needed to grow the economy at a healthy pace.

Highlights of Key Components

William Dunkelberg, the Chief Economist for NFIB, said in the release, ““In the last year, small-business optimism has limped along, and today the sector is no better off than it was just over a year ago.” He expresses disappointment over the fact that the survey’s data did not contain anything that would have him believe “economic activity will pick up this year.”

Based on the results, Dunkelberg expects the “depressed” business hiring and outlays in May to carry over into the short-term.

The survey reveals the following insight into the minds of small business owners:

• Business Conditions – “Uncertainty” reigns as only seven percent of respondents stated now presented a good time to expand operations. Sixty percent believe now is not a good time to expand. Only two percent of owners foresee improved real sales volume.
• Capital Expenditures – In 2007, 60 percent of business owners’ survey made capital expenditures compared to 24 percent (for vehicles) 14 percent for improved/expanded facilities, seven percent for new buildings/land and 13 percent for fixtures and furniture. Twenty-four percent of business owners plan to make capital expenditures over the next 3 to 6 month period.
• Job Creation – Ten percent of respondents created an average of 2.6 jobs, per company, over the last few months. Ten percent of firms added 2.1 jobs and 75 percent of companies did not have a net change in employment. Twenty percent of business owners reported a hard time filling vacant positions—the highest-level since June 2008.

• Sales- The survey measured a modest increase in sales for the small-business segment. The net percent of firms experiencing higher nominal sales over the last three months declined to two percent. While 27 percent of owners reported lower sales, 25 percent of business owners had higher sales for the last 90 days compared to the previous 90 days.

Mr. Dunkelberg blames Washington for what he categorizes as a lack of priority when it comes to investing in “jobs, plant and equipment,” saying “people are still bracing for the worse.”

The survey showed better numbers for the collection and payment of bills and more trade credit availability. In addition, compensation showed “strength” and price increases slowed down.

What Is the Index of Small Business Optimism

This index consists of data collected from a survey of members in the National Federation of Independent Business. The index presents an aggregate of responses made to questions built around ten components. The following three components measure respondents’ plans for expanding operations:

• Hiring
• Capital outlays
• Increase inventory

The seven remaining elements evaluate respondents’ expectations, current state of circumstances and expectations about the general economy:

1. Expectation of an improved economy
2. Outlook for real higher sales
3. Current inventory level
4. Current job openings
5. Expected credit  conditions
6. Is the present a good time to expand
7. Earning trends

For 38 years, the NFIB Research Foundation has amassed data regarding economic trends in the small business sector, beginning with quarterly surveys and moving to monthly polls in 1986. The survey’s respondents come from the NFIB membership roll.