Small business growth slowed in March, NFIB Index shows

April 9, 2013 -  By

The National Federation of Independent Business (NFIB) has reported that three months of sustained growth has ended with the March NFIB Index of Small Business Optimism.

Figures show the March Index declined 1.3 points, landing at 89.5. In the 44 months of economic expansion since the beginning of July 2009, the Index has averaged 90.7, putting the March reading below the mean for this period.

Six of the 10 Index components—including labor market indicators, inventory investment plans and sales expectations—decreased whereas two increased. Two of the components remained the same.

“After another false start, small-business confidence has sputtered and stalled again,” said NFIB chief economist Bill Dunkelberg. “For the sector that produces half the private gross domestic product and employs half the private sector workforce—the fact that they are not growing, not hiring, not borrowing and not expanding like they should be is evidence enough that uncertainty is slowing the economy.”

More than three-quarters of business owners said they expect business conditions in six months to remain the same as they are now or get worse, the March report shows.

Aggregated, there are no plans to create new jobs in the coming months, although some parts of the country will experience job growth and some business sectors–particularly housing and energy–will create new jobs.

What’s the problem? For 23 percent of business owners, it’s taxes and regulations while 21 percent said it’s red tape. Only 3 percent said that credit is their top business problem, a figure that comes close to the record low.

Business owners reported increasing employment an average of 0.19 workers per firm in March, the best reading NFIB has recorded in a year. This is the fourth consecutive month of positive job growth.

Of the 47 percent of business owners who hired or tried to hire workers during the past three months, 36 percent (77 percent of those trying to hire or hiring) reported few or no qualified applicants for open positions.

The net percent of all business owners (seasonally adjusted) reporting higher nominal sales over the past three months was negative 7 percent, an improvement of 2 points and the best reading in eight months. Firms are still reporting more declines than gains, however. Seventeen percent of small employers cite weak sales as their top business problem, a 1-point improvement over February figures.

Reports of positive earnings trends improved 3 points in March, even though it is at negative 23 percent. A seasonally adjusted net 16 percent of owners reported higher employee compensation (up 2 points from last month) however, which is good news for employees.

Credit demands remained weak in March. All credit needs have been met according to 29 percent of those asked and 49 percent explicitly said they did not want a loan. Only 7 percent said all their credit needs were not met, a figure unchanged from February and 3 points above the record low.

Business owners are in “maintenance mode” when it comes to business investment. The frequency of reported capital outlays over the past six months rose 1 point to 57 percent, rising steadily by small amounts since January. The percent of business owners planning capital outlays in the next three to six months remains an unchanged 25 percent.

The readings in the Now a Good Time to Expand Index component are among the lowest in the 40-year history of the NFIB survey. Four percent of the owners surveyed characterized the current period as a good time to expand facilities, down 1 point. The net percent of owners expecting better business conditions in six months was a net negative 28 percent, unchanged from February but 7 points better than December.

The pace of inventory reduction continued, with a net negative 6 percent of all owners reporting growth in inventories (seasonally adjusted). This is 3 points better than February but shows more owners reducing stocks than adding to them. For all firms, a net negative 1 percent (down 2 points) reported stocks too low, historically a good level of satisfaction with inventory stocks.

Small-business owners have few opportunities to raise prices due to weak spending growth and widespread excess capacity. Seventeen percent reported reducing their average selling prices in the past three months (up 1 point), and 18 percent reported price increases (down 3 points). Seasonally adjusted, the net percent of business owners raising selling prices was a negative 1 percent, down 3 points. In the months to come, a net 17 percent of owners plan to raise average prices (down 6 points).

The report is based on the responses of 759 randomly sampled small businesses in NFIB’s membership, surveyed throughout March.

“Virtually no owners think the current period is a good time to expand, because they simply don’t know what the future holds. So why invest? And with the lack of any sustainable fiscal policy or a federal budget, no one’s banking that Washington will be at forefront of any meaningful change,” Dunkelberg said. “Overall, it appears that there will be little growth coming from the small business half of the economy; as the world economy slows, even big business may suffer.”

LM Staff

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