October 12, 2010

Small Businesses Still Gloomy on Economy: NFIB Index

Index shows small rise in optimism, but some businesses plan layoffs

If you ask small business owners, the recession isn’t over till it’s over—and if their hiring and expansion plans are any indication, that hasn’t happened yet.

While the Index of Small Business Optimism from the National Federation of Independent Business, a small business association, showed an increase of 0.2 points in September, that’s hardly cause for celebration. In a lot of ways, small business owners are still feeling the pinch, and they’re not happy about it. The survey, released on Tuesday, indicated that all is far from well, although there are small signs of improvement in some categories.

Those with unfilled job openings, 11%, are unchanged from August; historically this is a very weak number, according to the survey. Eight percent intend to hire more employees—this too is unchanged—but 16% plan to lay off; this is 3% more than in August.

Seasonally adjusted numbers reporting higher sales are down one point, putting the total at a negative 17%. While this is 17 points higher than the so-called bottom of the recession in June of 2009, it’s still showing that customers aren’t spending. And prices are down; this was the 22nd straight month in which more business owners said they lowered prices instead of raising them. Profit reports are also down, three points lower in September than in the preceding month, and only a net three percent, seasonally adjusted, reported raising their workers’ wages.

According to Ian Shepherdson, chief U.S. economist for High Frequency Economics, in an analyst note, there is cause for cautious optimism: “The good news here is that the headline index is creeping higher after plunging in the wake of the stock market rollover in the spring.”

However, the bad news about small business recovery—“progress is slow and small firms remain deeply depressed, much more so than larger enterprises”—is added to by credit woes: “Credit availability is still the key problem in our view; the proportion of regular borrowers saying credit is harder to get rose 2 points to a five-month high. This is disappointing but the monthly data can be erratic.”

He adds that hiring plans are at their lowest level since November of 2009, even though the plans for capital expenditures are now at a three-month high. He concludes, “We expect a gradual improvement over the next year as banks start to lend.”

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