Inflation, Not Credit, Concern Small Business

Washington, DC, May 15, 2008--"Recession fears are spreading and the economy is showing definite signs of slowing, even on Main Street," according NFIB Chief Economist William Dunkelberg.

The NFIB Index of Small Business Optimism rose 1.9 points in April to 91.5 (1986=100). Half of the gain was due to an improved outlook for business conditions six months out, and a quarter was from improved earnings trends. At the same time, NFIB said, rising prices are becoming a matter of serious concern.

In April, small business owners reported no increase in employment, which is an improvement from the reductions reported in March.

"This is a much stronger labor market than typically found in a recession," Dunkelberg said, "but it is weak."

Over the next three months, 19 percent plan to create new jobs  and 6 percent plan workforce reductions (both down a point), yielding a seasonally adjusted net 5 percent of owners planning to create new jobs--up two points from March. Not seasonally adjusted, job creation plans were positive in all industry groups.

The frequency of reported capital outlays over the past six months was basically unchanged at 56 percent of all firms. Thirty-eight percent reported spending on new equipment, 22 percent acquired vehicles, and 13 percent each improved or expanded their facilities and spent money for new fixtures and furniture. Six percent acquired new buildings or land for expansion. 

Plans to make capital expenditures over the next few months rose one point to 26 percent.

A net-negative 10 percent of owners reported gains in inventory stocks (seasonally adjusted), three points worse than March.

The net percent of owners expecting gains in real sales volumes was unchanged at a net-negative three points, seasonally adjusted. Because of the pessimistic outlook for real sales volumes, more firms plan to continue to cut stocks rather than add to them but at a pace no worse than in February.

The net percent of all owners (seasonally adjusted) reporting higher sales in the past three months gained two points, rising to a negative 9 percent.

"Clearly the economy is weak compared to six months ago," said Dunkelberg.

A slowing economy is not deterring firms from raising prices. The net percent of owners reporting higher average selling prices rose another two points to a net 20 percent in April.

The percent of owners reporting earnings gains posted a five-point improvement, still cyclically low. Seasonally adjusted, those reporting declining earnings outnumbered those with gains by 28 percentage points.

The net percent of owners reporting loans harder to get in recent months rose two points to a net 9 percent after falling two points in March.