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NFIB Poll: Small Biz optimism continues to go backward

May 15, 2011

NFIB Poll: Small Biz optimism continues to wane second month in a row
By National Federation of Independent Business

WASHINGTON,  – The month of April marked a second consecutive month of decline in small-business optimism; NFIB’s index dropped to 91.2 in April – a much smaller dip than the previous month, but still another sign of the nation’s anemic economic recovery. While reports of net jobs created by small firms stayed positive, the numbers posted did not match the surprising gains cited in last week’s Labor Department report. This suggests that the bulk of new hiring is happening in larger firms and the smaller counterparts on Main Street—the ones traditionally responsible for leading the country out of recessions, are still struggling to hire.

“While it’s too early to say that a trend has emerged, a second consecutive month of decline in small-business optimism does very little to encourage further confidence in a strong economic recovery,” said NFIB Chief Economist Bill Dunkelberg. “Owners simply find no reason to be optimistic about the future and therefore they find no reason to pick up the pace of spending and hiring. It’s difficult to know exactly why the outlook for small firms is in decline; but it’s a safe bet that political and economic uncertainty—about the deficit, the threat of inflation, rising energy and health care costs—are at top of the mind for most small-business owners. Who is going to stay positive in this turbulent political environment?”
April’s report did not differ significantly from the previous month’s. But in spite of the generally subdued April reading, two notable changes emerged, although neither are index indicators. First, small businesses posted a substantial increase in the number of owners who reported raising selling prices. And second, the net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months improved 7 points to a net negative 5 percent, the best reading since December 2007.

Some other highlights of April’s Optimism Index include:

– The net percent of owners expecting better business conditions in six months slipped another 3 points to negative 8 percent, 18 percentage points worse than in January. Uncertainty is the enemy, and there is plenty of it to convince owners to “keep their powder dry”.
– Higher earnings were reported in April, improving 6 points and registering a net negative 26 percent. While not a positive number, it is a greatly improved number for the small-business bottom line. Not seasonally adjusted, 15 percent reported profits higher (up 4 points), but 47 percent reported profits falling (down 2 points).
– In April, a net 12 percent reported raising average selling prices, a 3 point gain from March and 23 points higher than last September. A net 24 percent planned hikes in average selling prices in April. A major force behind the price hikes is the elimination of inventory excesses which appeared in 2008 when consumers decided to raise their saving rate.
– Only 50 percent of all firms reported making capital outlays last month, down 1 point from the month prior. The percent of owners planning capital outlays in the next three to six months fell 3 points to 21 percent, a recession level reading. Money is cheap, but most owners are not interested in a loan to finance equipment they don’t need. Prospects are still uncertain enough to discourage any but the most profitable and promising investments.

Today’s report is based on the responses of 1,985 randomly sampled small businesses in NFIB’s membership, surveyed throughout the month of April. Download the complete study at http://www.nfib.com/sbetindex.

  
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