1 NFIB SMALL BUSINESS ECONOMIC TRENDS William C. Dunkelberg Holly Wade April 215 Based on a Survey of Small and Independent Business Owners SMALL BUSINESS OPTIMISM INDEX COMPONENTS Index Component Seasonally Adjusted Level Change from Last Month Contribution to Index Change Plans to Increase Employment 11% 1 * Plans to Make Capital Outlays 26% 2 * Plans to Increase Inventories 4% 3 * Expect Economy to Improve -6% 1 * Expect Real Sales Higher 1% -3 * Current Inventory -1% 4 * Current Job Openings 27% 3 * Expected Credit Conditions -4% 2 * Now a Good Time to Expand 1% * Earnings Trends -16% 6 * Total Change 19 * (Column 1 is the current reading; column 2 is the change from the prior month; column 3 the percent of the total change accounted for by each component; * is under 1 percent and not a meaningful calculation)
2 NFIB SMALL BUSINESS ECONOMIC TRENDS NFIB Research Foundation has collected Small Business Economic Trends Data with Quarterly surveys since 1973 and monthly surveys since The sample is drawn from the membership files of the National Federation of Independent Business (NFIB). Each was mailed a questionnaire and one reminder. Subscriptions for twelve monthly SBET issues are $25. Historical and unadjusted data are available, along with a copy of the questionnaire, from the NFIB Research Foundation. You may reproduce Small Business Economic Trends items if you cite the publication name and date and note it is a copyright of the NFIB Research Foundation. NFIB Research Foundation. ISBS # Chief Economist William C. Dunkelberg and Director, Research and Policy Analysis Holly Wade are responsible for the report. IN THIS ISSUE Summary Commentary Optimism Outlook Earnings Sales Prices Employment Compensation Credit Conditions Inventories Capital Outlays Most Important Problem Survey Profile Economic Survey
3 SUMMARY OPTIMISM INDEX The Small Business Optimism Index increased 1.7 points from March to 96.9, this in spite of a quarter of virtually no economic growth. Unfortunately, the Index remained below the January reading. Nine of the 1 Index components gained or were unchanged, only real sales expectations were weaker. But this still leaves the Index below its historical average, oscillating between 95 and 98 but never breaking out except for December, when the Index just tipped past 1, only to fall again. LABOR MARKETS Small businesses posted another decent month of job creation. Those that hired were more aggressive than those reducing employment, producing an average increase of.14 workers per firm, continuing a string of solid readings for 215. Fifty-three percent reported hiring or trying to hire (up 3 points), but 44 percent reported few or no qualified applicants for the positions they were trying to fill. Thirteen percent reported using temporary workers, up 3 points. Twenty-seven percent of all owners reported job openings they could not fill in the current period, up 3 points from March. A net 11 percent plan to create new jobs, up 1 point and a solid reading. CAPITAL SPENDING Sixty percent reported outlays, up 2 points in spite of the collapse of spending in energy and gas exploration. The percent of owners planning capital outlays in the next 3 to 6 months rose 2 points to 26 percent, not a strong reading historically but among the best in this expansion. Forty-four percent expected improved real sales volumes, 18 percent expected declines, leaving the net percent expecting higher real sales 3 points lower at a net 1 percent of all owners. PROFITS AND WAGES Earnings trends posted an unexpected 6 point gain, posting a reading of a net negative 16 percent. Reports of increased labor compensation rose 1 point to a net 23 percent of all owners. Labor costs continue to put pressure on the bottom line but fuel prices are down a lot. Two percent reported reduced worker compensation and 26 percent reported raising compensation. This should begin to show up in wage growth, although rising benefits offset potential increases in take-home pay. A seasonally adjusted net 14 percent plan to raise compensation in the coming months (up 1 point). The reported gains in compensation are still in the range typical of an economy with reasonable growth, and labor market conditions are suggestive of a tightening, which will put further upward pressure on compensation along with government regulations including the healthcare law. This survey was conducted in April 215. A sample of 1,799 small-business owners/members was drawn. One thousand five hundred (1,5) usable responses were received a response rate of 14 percent. 1 NFIB Small Business Economic Trends Quarterly Report
4 SUMMARY INVENTORIES AND SALES The net percent of owners reporting inventory reductions rose 3 points to a net negative 1 percent (seasonally adjusted). The net percent of owners viewing current inventory stocks as too low improved 4 points to a net negative 1 percent. Apparently owners were meeting demand by drawing down stocks to match their mediocre expectations for improvements in sales. The net percent of owners planning to add to inventory rose 3 points to 4 percent, in sympathy with the more widespread reduction in stocks in the first quarter. The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past 3 months compared to the prior 3 months fell 1 point to a net negative 4 percent. Although consumer spending was the only bright spot in the first quarter GDP report, it was nothing to write home about. Eleven percent cited weak sales as their top business problem, unchanged from March. Expected real sales volumes posted a 3 point decline, falling to a net 1 percent of owners expecting gains, after a 5 point decline in January and February and a 2 point decline in March. The 4 month downward trend does not bode well for economic growth in the small business sector. Overall, expectations are not showing a lot of strength. INFLATION Fourteen percent of the NFIB owners reported reducing their average selling prices in the past 3 months (down 1 point), and 18 percent reported price increases (down 1 point). Seasonally adjusted, the net percent of owners raising selling prices was 2 percent, a very tame reading and unchanged from March. Seasonally adjusted, a net 17 percent plan price hikes (up 2 points). The economy has grown too slowly to support widespread price hikes. 2 NFIB Small Business Economic Trends Quarterly Report CREDIT MARKETS Four percent of owners reported that all their borrowing needs were not satisfied, down 1 point and historically low. Thirty-one percent reported all credit needs met, and 53 percent explicitly said they did not want a loan. For most of the recession, record numbers of firms have been on the credit sidelines, seeing no good reason to borrow. Only 2 percent reported that financing was their top business problem (down 1 point) compared to 22 percent citing taxes, 23 percent citing regulations and red tape and 11 percent citing weak sales. Thirty percent of all owners reported borrowing on a regular basis, down 2 points. The average rate paid on short maturity loans fell 7 basis points to 5. percent. Loan demand remained historically weak. The net percent of owners expecting credit conditions to ease in the coming months was a negative 4 percent, a 2 point improvement. Interest rates are low, but prospects for putting borrowed money profitably to work have not improved enough to induce owners to step up their borrowing and spending.
5 COMMENTARY So 215 got off to a slow start with GDP increasing only.2 percent at first guess. Trade data will apparently depress that further, perhaps producing a negative print, although more consumer spending may be found to keep growth above the line. For a different perspective, GDP has grown 3 percent from the end of Q1 214 to the end of Q1 215, reflecting the volatility in growth that has occurred. Growth for the year will improve, but this was not a good start. Job growth certainly hit a major speed bump. Weather, sure, but not in major GDP states like Texas, Florida, and California. The plunge in oil prices certainly adversely impacted job growth in the shale states. The West Coast dock strike? Maybe. But hard to figure out how many jobs might have been lost due to delays, certainly temporary losses that will be recovered when the goods flow. NFIB indicators have small business job growth fairly solid and the job openings numbers continue to signal a decline in the unemployment rate. Financial markets remain on edge for signs of a Federal Reserve rate hike. A zero rate is looking even more absurd with 3 percent growth for the past 12 months. The Fed could argue that growth would have been worse if rates were higher, but more and more observers doubt the validity of that proposition. Low rates (and lower rates) won t drive more spending, everyone has their cheap loan. Rather, it will require an improvement in economic and political prospects to induce economic agents to pick up the pace of hiring and investment spending. Meantime, investors (Gamblers? Are there any investors?) will continue to play the Fed s waiting/guessing game. The most recent murmurs from the Fed suggest they are recognizing the distortions in asset prices that buying trillions of dollars of risk-free assets (and hoarding them) have created. The small business growth engine appears to be accounting for more of the real growth (what little there is) as economic activity among the larger firms fades. Solid growth (over 3 percent) will require good performances from both sectors and that will be elusive this year. 3 NFIB Small Business Economic Trends Quarterly Report
6 OVERVIEW - SMALL BUSINESS OPTIMISM OPTIMISM INDEX Based on Ten Survey Indicators (Seasonally Adjusted 1986=1) 11 Index Value (1986=1) OPTIMISM INDEX Based on Ten Survey Indicators (Seasonally Adjusted 1986=1) SMALL BUSINESS OUTLOOK 4 NFIB Small Business Economic Trends Quarterly Report Percent "Good Time to Expand" (thick line) OUTLOOK Good Time to Expand and Expected General Business Conditions January Quarter 1974 to April Quarter Percent "Better" Minus "Worse" Expected General Business Conditions (thin line)
7 SMALL BUSINESS OUTLOOK (CONTINUED) OUTLOOK FOR EXPANSION Percent Next Three Months Good Time to Expand MOST IMPORTANT REASON FOR EXPANSION OUTLOOK Reason Percent by Expansion Outlook April 215 Reason Good Time Not Good Time Uncertain Economic Conditions Sales Prospects Fin. & Interest Rates 1 1 Cost of Expansion 5 5 Political Climate 1 9 Other/Not Available OUTLOOK FOR GENERAL BUSINESS CONDITIONS Net Percent ( Better Minus Worse ) Six Months From Now NFIB Small Business Economic Trends Quarterly Report
8 SMALL BUSINESS EARNINGS EARNINGS Actual Last Three Months January Quarter 1974 to April Quarter Net Percent ACTUAL EARNINGS CHANGES Net Percent ( Higher Minus Lower ) Last Three Months Compared to Prior Three Months NFIB Small Business Economic Trends Quarterly Report MOST IMPORTANT REASON FOR LOWER EARNINGS Percent Reason April 215 Reason Current Month One Year Ago Two Years Ago Sales Volume Increased Costs* Cut Selling Prices Usual Seasonal Change Other * Increased costs include labor, materials, finance, taxes, and regulatory costs.
9 SMALL BUSINESS SALES SALES Actual (Prior Three Months) and Expected (Subsequent Three Months) January 1974 to April 215 Net Percent Expected -3 Actual ACTUAL SALES CHANGES Net Percent ( Higher Minus Lower ) Last Three Months Compared to Prior Three Months SALES EXPECTATIONS Net Percent ( Higher Minus Lower ) During Next Three Months NFIB Small Business Economic Trends Quarterly Report
10 SMALL BUSINESS PRICES Net Percent PRICES Actual Last Three Months and Planned Next Three Months January Quarter 1974 to April Quarter Actual Planned ACTUAL PRICE CHANGES Net Percent ( Higher Minus Lower ) Compared to Three Months Ago NFIB Small Business Economic Trends Quarterly Report PRICE PLANS Net Percent ( Higher Minus Lower ) in the Next Three Months
11 SMALL BUSINESS EMPLOYMENT ACTUAL EMPLOYMENT CHANGES Net Percent ( Increase Minus Decrease ) in the Last Three Months QUALIFIED APPLICANTS FOR JOB OPENINGS Percent Few or No Qualified Applicants Percent EMPLOYMENT Planned Next Three Months and Current Job Openings January Quarter 1974 to April Quarter 215 Planned Job Openings NFIB Small Business Economic Trends Quarterly Report
12 SMALL BUSINESS EMPLOYMENT (CONTINUED) JOB OPENINGS Percent With Positions Not Able to Fill Right Now HIRING PLANS Net Percent ( Increase Minus Decrease ) in the Next Three Months NFIB Small Business Economic Trends Quarterly Report Net Percent SMALL BUSINESS COMPENSATION COMPENSATION Actual Last Three Months and Planned Next Three Months January 1986 to April 215 Planned Higher Actual Higher
13 SMALL BUSINESS COMPENSATION (CONTINUED) ACTUAL COMPENSATION CHANGES Net Percent ( Increase Minus Decrease ) During Last Three Months COMPENSATION PLANS Net Percent ( Increase Minus Decrease ) in the Next Three Months Prices (Thick Line) PRICES AND LABOR COMPENSATION Net Percent Price Increase and Net Percent Compensation Increase Labor Compensation (Thin Line) 11 NFIB Small Business Economic Trends Quarterly Report
14 SMALL BUSINESS CREDIT CONDITIONS Net Percent CREDIT CONDITIONS Loan Availability Compared to Three Months Ago* January Quarter 1974 to April Quarter * For the population borrowing at least once every three months. REGULAR BORROWERS Percent Borrowing at Least Once Every Three Months NFIB Small Business Economic Trends Quarterly Report AVAILABILITY OF LOANS Net Percent ( Easier Minus Harder ) Compared to Three Months Ago (Regular Borrowers)
15 SMALL BUSINESS CREDIT CONDITIONS (CONTINUED) BORROWING NEEDS SATISFIED Percent of All Businesses Last Three Months Satisfied/ Percent of All Businesses Last Three Months Not Satisfied (Borrowers Only) 21 27/11 29/9 29/11 28/9 28/8 25/1 27/9 27/9 27/9 26/9 25/9 28/ /8 29/8 28/7 28/8 28/8 25/9 28/8 28/7 29/8 28/9 3/7 29/ /7 31/7 27/8 31/8 29/9 29/7 3/7 31/7 32/8 28/8 28/6 29/ /6 29/7 29/7 31/6 28/5 29/5 3/5 31/5 28/6 28/6 32/4 32/ /5 29/5 3/5 3/5 3/5 27/6 3/6 28/4 28/6 29/4 29/4 32/ /4 33/3 35/5 31/4 EXPECTED CREDIT CONDITIONS Net Percent ( Easier Minus Harder ) During Next Three Months (Regular Borrowers) Relative (thick line) INTEREST RATES Relative Rates and Actual Rates Last Three Months January Quarter 1974 to April Quarter Actual (thin line) 13 NFIB Small Business Economic Trends Quarterly Report
16 SMALL BUSINESS CREDIT CONDITIONS (CONTINUED) RELATIVE INTEREST RATE PAID BY REGULAR BORROWERS* Net Percent ( Higher Minus Lower ) Compared to Three Months Ago *Borrowing at Least Once Every Three Months. ACTUAL INTEREST RATE PAID ON SHORT-TERM LOANS BY BORROWERS Average Interest Rate Paid NFIB Small Business Economic Trends Quarterly Report Net Percent SMALL BUSINESS INVENTORIES INVENTORIES Actual (Last Three Months) and Planned (Next Three Months) January Quarter 1974 to April Quarter 215 Actual Planned
17 SMALL BUSINESS INVENTORIES (CONTINUED) ACTUAL INVENTORY CHANGES Net Percent ( Increase Minus Decrease ) During Last Three Months INVENTORY SATISFACTION Net Percent ( Too Low Minus Too Large ) at Present Time INVENTORY PLANS Net Percent ( Increase Minus Decrease ) in the Next Three to Six Months NFIB Small Business Economic Trends Quarterly Report
18 SMALL BUSINESS CAPITAL OUTLAYS INVENTORY SATISFACTION AND INVENTORY PLANS Net Percent ( Too Low Minus Too Large ) at Present Time Net Percent Planning to Add Inventories in the Next Three to Six Months Percent -5-1 Satisfaction Plans CAPITAL EXPENDITURES Actual Last Six Months and Planned Next Three Months January Quarter 1974 to April Quarter Percent 4 2 Actual Plans NFIB Small Business Economic Trends Quarterly Report ACTUAL CAPITAL EXPENDITURES Percent Making a Capital Expenditure During the Last Six Months
19 SMALL BUSINESS CAPITAL OUTLAYS (CONTINUED) TYPE OF CAPITAL EXPENDITURES MADE Percent Purchasing or Leasing During Last Six Months Type Current One Year Ago Two Years Ago Vehicles Equipment Furniture or Fixtures Add. Bldgs. or Land Improved Bldgs. or Land AMOUNT OF CAPITAL EXPENDITURES MADE Percent Distribution of Per Firm Expenditures During the Last Six Months Amount Current One Year Ago Two Years Ago $1 to $ $1, to $4, $5, to $9, $1, to $49, $5, to $99, $1, No Answer CAPITAL EXPENDITURE PLANS Percent Planning a Capital Expenditure During Next Three to Six Months NFIB Small Business Economic Trends Quarterly Report
20 SINGLE MOST IMPORTANT PROBLEM Problem SINGLE MOST IMPORTANT PROBLEM April 215 Current One Year Ago Survey High Survey Low Taxes Inflation Poor Sales Fin. & Interest Rates Cost of Labor Govt. Reqs. & Red Tape Comp. From Large Bus Quality of Labor Cost/Avail. of Insurance Other SELECTED SINGLE MOST IMPORTANT PROBLEM 4 Insurance, Big Business Competition, Inflation, and Regulation January Quarter 1974 to April Quarter 215 Big Business Insurance 3 Inflation Regulation Percent of Firms NFIB Small Business Economic Trends Quarterly Report Percent of Firms SELECTED SINGLE MOST IMPORTANT PROBLEM Sales, Fin. & Interest Rates, Labor Cost, Labor Quality, and Taxes January Quarter 1974 to April Quarter 215 Taxes Interest Rates Sales Labor Quality
21 SURVEY PROFILE OWNER/MEMBERS PARTICIPATING IN ECONOMIC SURVEY NFIB Actual Number of Firms Percent NFIB OWNER/MEMBERS PARTICIPATING IN ECONOMIC SURVEY Industry of Small Business Percent NFIB OWNER/MEMBERS PARTICIPATING IN ECONOMIC SURVEY Number of Full and Part-Time Employees 19 NFIB Small Business Economic Trends Quarterly Report
22 NFIB RESEARCH FOUNDATION SMALL BUSINESS ECONOMIC SURVEY SMALL BUSINESS SURVEY QUESTIONS PAGE IN REPORT Do you think the next three months will be a good time for small business to expand substantially? Why? About the economy in general, do you think that six months from now general business conditions will be better than they are now, about the same, or worse? Were your net earnings or income (after taxes) from your business during the last calendar quarter higher, lower, or about the same as they were for the quarter before? If higher or lower, what is the most important reason? During the last calendar quarter, was your dollar sales volume higher, lower, or about the same as it was for the quarter before? Overall, what do you expect to happen to real volume (number of units) of goods and/or services that you will sell during the next three months? How are your average selling prices compared to three months ago? In the next three months, do you plan to change the average selling prices of your goods and/or services? During the last three months, did the total number of employees in your firm increase, decrease, or stay about the same? NFIB Small Business Economic Trends Quarterly Report If you have filled or attempted to fill any job openings in the past three months, how many qualified applicants were there for the position(s)? Do you have any job openings that you are not able to fill right now? In the next three months, do you expect to increase or decrease the total number of people working for you? Over the past three months, did you change the average employee compensation? Do you plan to change average employee compensation during the next three months?
23 SMALL BUSINESS SURVEY QUESTIONS PAGE IN REPORT Are loans easier or harder to get than they were three months ago? During the last three months, was your firm able to satisfy its borrowing needs? Do you expect to find it easier or harder to obtain your required financing during the next three months? If you borrow money regularly (at least once every three months) as part of your business activity, how does the rate of interest payable on your most recent loan compare with that paid three months ago? If you borrowed within the last three months for business purposes, and the loan maturity (pay back period) was 1 year or less, what interest rate did you pay? During the last three months, did you increase or decrease your inventories? At the present time, do you feel your inventories are too large, about right, or inadequate? Looking ahead to the next three months to six months, do you expect, on balance, to add to your inventories, keep them about the same, or decrease them? During the last six months, has your firm made any capital expenditures to improve or purchase equipment, buildings, or land? If [your firm made any capital expenditures], what was the total cost of all these projects? Looking ahead to the next three to six months, do you expect to make any capital expenditures for plant and/or physical equipment? What is the single most important problem facing your business today? Please classify your major business activity, using one of the categories of example below How many employees do you have full and part-time, including yourself? NFIB Small Business Economic Trends Monthly Report