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Small Business Economic Trends Jan 2010
Truly depressing reading!
Truly depressing reading!
OPTIMISM INDEX
It has been a very difficult year and 2009 did not end on an uplifting note. The Index of Small Business Optimism lost 0.3 points, falling to 88.0 (1986=100), 7.0 points higher than the survey’s second lowest reading reached in March 2009 (the lowest reading was 80.1 in 1980). But optimism has clearly stalled in spite of the improvements in the economy since the first quarter of 2009.
LABOR MARKETS
The “job generating machine” remains in reverse, jobs are being lost and new hiring is very weak. Ten percent of the owners increased employment, but 22 percent reduced employment (seasonally adjusted). While the trend for increased employment is going in the right direction, there is no indication that job growth will be strong enough to dramatically reduce the unemployment rate. Ten percent (seasonally adjusted) reported unfilled job openings, up two points from November, a good sign. Over the next three months, 15 percent plan to reduce employment (down two points), and eight percent plan to create new jobs (up one point), yielding a seasonally adjusted net negative two percent of owners planning to create new jobs, a one point improvement from November.
CAPITAL SPENDING
The frequency of reported capital outlays over the past six months was unchanged at 44 percent of all firms, holding at a record low level (data first collected in 1979). Capital spending is on the sidelines. Spending on capital projects remained at historic low levels, as did the demand for credit to finance such projects. Plans to make capital expenditures over the next few months rose two points to 18 percent, two points above the 35 year record low. Seven percent characterized the current period as a good time to expand facilities, down one point from November and only a net two percent expect business conditions to improve over the next six months, down one point from November.
INVENTORIES AND SALES
The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months remained negative at negative 25 percent, but this was a six point improvement over the November reading. The net percent of owners expecting real sales gains improved one point to a negative one percent of all owners, still negative, but 30 points better than the March. Small business owners continued to liquidate inventories and weak sales trends gave little reason to order new stocks. A net negative 28 percent of all owners reported gains in inventory stocks, a new monthly record. For all firms, a net negative four percent (a two point deterioration) reported stocks too low, so stocks are still considered a bit “excessive” relative to expected real sales volumes (which are weak).
INFLATION
The weak economy continued to put downward pressure on prices. Ten percent of the owners reported raising average selling prices, but 33 percent reported price reductions. Widespread price cutting contributed to the reports of lower nominal sales. Plans to raise prices fell one point to a net seasonally adjusted three percent of owners, 35 points below the July 2008 reading. On the cost or input side, the percent of owners citing inflation as their number one problem (e.g. costs coming in the “back door” of the business) fell two points to two percent and only three percent cited the cost of labor, so neither labor costs nor materials costs are pressuring owners.
PROFITS AND WAGES
Reports of positive profit trends were unchanged at a net negative 43 percentage points. The persistence of this imbalance is bad news for the small business community. Profits are important for the support of capital spending. Of the 12 percent of owners reporting higher earnings, 50 percent cited stronger sales (unchanged) as the cause and eight percent credited lower labor costs. For the 54 percent reporting lower earnings compared to the previous three months, 65 percent cited weaker sales, four percent each blamed rising labor costs, higher materials costs and higher insurance costs, while six percent blamed lower selling prices. Poor real sales and price cuts are responsible for much of the weakness in profits. Owners continued to reduce compensation at a record pace, with 10 percent reporting reduced worker compensation and nine percent reporting gains, unchanged from November.
CREDIT MARKETS
Regular borrowers (accessing capital markets at least once a quarter) continued to report difficulties in arranging credit at the highest frequency since 1983. A net 15 percent reported loans harder to get than in their last attempt, unchanged from November. Still that is not nearly as severe as the financial distress reported in the pre-1983 period. Twenty four months of recession have sapped the financial strength of many small firms. Thirty three (33) percent reported regular borrowing, fairly typical of post - 1983 and unchanged from November. Eight percent of all owners reported that their borrowing needs were not satisfied, down two points from November. The remaining 92 percent of all owners either obtained the credit they wanted or were not interested in borrowing. Only 4 percent of the owners reported “finance” as their #1 business problem (down 1 point). Pre-1983, as many as 37 percent cited financing and interest rates as their top problem. The percent of owners reporting higher interest rates on their most recent loan was seven percent, while three percent reported lower rates. The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted net negative 15 percent (more owners expect that it will be “harder” to arrange financing)
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It has been a very difficult year and 2009 did not end on an uplifting note. The Index of Small Business Optimism lost 0.3 points, falling to 88.0 (1986=100), 7.0 points higher than the survey’s second lowest reading reached in March 2009 (the lowest reading was 80.1 in 1980). But optimism has clearly stalled in spite of the improvements in the economy since the first quarter of 2009.
LABOR MARKETS
The “job generating machine” remains in reverse, jobs are being lost and new hiring is very weak. Ten percent of the owners increased employment, but 22 percent reduced employment (seasonally adjusted). While the trend for increased employment is going in the right direction, there is no indication that job growth will be strong enough to dramatically reduce the unemployment rate. Ten percent (seasonally adjusted) reported unfilled job openings, up two points from November, a good sign. Over the next three months, 15 percent plan to reduce employment (down two points), and eight percent plan to create new jobs (up one point), yielding a seasonally adjusted net negative two percent of owners planning to create new jobs, a one point improvement from November.
CAPITAL SPENDING
The frequency of reported capital outlays over the past six months was unchanged at 44 percent of all firms, holding at a record low level (data first collected in 1979). Capital spending is on the sidelines. Spending on capital projects remained at historic low levels, as did the demand for credit to finance such projects. Plans to make capital expenditures over the next few months rose two points to 18 percent, two points above the 35 year record low. Seven percent characterized the current period as a good time to expand facilities, down one point from November and only a net two percent expect business conditions to improve over the next six months, down one point from November.
INVENTORIES AND SALES
The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months remained negative at negative 25 percent, but this was a six point improvement over the November reading. The net percent of owners expecting real sales gains improved one point to a negative one percent of all owners, still negative, but 30 points better than the March. Small business owners continued to liquidate inventories and weak sales trends gave little reason to order new stocks. A net negative 28 percent of all owners reported gains in inventory stocks, a new monthly record. For all firms, a net negative four percent (a two point deterioration) reported stocks too low, so stocks are still considered a bit “excessive” relative to expected real sales volumes (which are weak).
INFLATION
The weak economy continued to put downward pressure on prices. Ten percent of the owners reported raising average selling prices, but 33 percent reported price reductions. Widespread price cutting contributed to the reports of lower nominal sales. Plans to raise prices fell one point to a net seasonally adjusted three percent of owners, 35 points below the July 2008 reading. On the cost or input side, the percent of owners citing inflation as their number one problem (e.g. costs coming in the “back door” of the business) fell two points to two percent and only three percent cited the cost of labor, so neither labor costs nor materials costs are pressuring owners.
PROFITS AND WAGES
Reports of positive profit trends were unchanged at a net negative 43 percentage points. The persistence of this imbalance is bad news for the small business community. Profits are important for the support of capital spending. Of the 12 percent of owners reporting higher earnings, 50 percent cited stronger sales (unchanged) as the cause and eight percent credited lower labor costs. For the 54 percent reporting lower earnings compared to the previous three months, 65 percent cited weaker sales, four percent each blamed rising labor costs, higher materials costs and higher insurance costs, while six percent blamed lower selling prices. Poor real sales and price cuts are responsible for much of the weakness in profits. Owners continued to reduce compensation at a record pace, with 10 percent reporting reduced worker compensation and nine percent reporting gains, unchanged from November.
CREDIT MARKETS
Regular borrowers (accessing capital markets at least once a quarter) continued to report difficulties in arranging credit at the highest frequency since 1983. A net 15 percent reported loans harder to get than in their last attempt, unchanged from November. Still that is not nearly as severe as the financial distress reported in the pre-1983 period. Twenty four months of recession have sapped the financial strength of many small firms. Thirty three (33) percent reported regular borrowing, fairly typical of post - 1983 and unchanged from November. Eight percent of all owners reported that their borrowing needs were not satisfied, down two points from November. The remaining 92 percent of all owners either obtained the credit they wanted or were not interested in borrowing. Only 4 percent of the owners reported “finance” as their #1 business problem (down 1 point). Pre-1983, as many as 37 percent cited financing and interest rates as their top problem. The percent of owners reporting higher interest rates on their most recent loan was seven percent, while three percent reported lower rates. The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted net negative 15 percent (more owners expect that it will be “harder” to arrange financing)
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