Washington, DC, January 9, 2007--A sharp drop in job creation plans, coupled with a decline in the net percent of small-business owners expecting the economy to improve, sent the NFIB Research Foundation Index of Small-Business Optimism back to mid-summer levels--down 3.2 points to 96.5 (1986=100).
Over the next three months, 14 percent plan to create new jobs (down four points), and nine percent plan workforce reductions (up three points), for a seasonally adjusted net 10 percent of owners planning to create new jobs, a remarkable decline from the near record high reading in October. "Labor markets ended the year with strength," said NFIB Chief Economist William Dunkelberg, “but it appears the first quarter performance may not be as strong."
19 percent (seasonally adjusted) reported unfilled job openings, down three points from November and eight points from October, a clear signal that the unemployment rate will start to rise in the first quarter. Ten percent of the owners reported that the availability of qualified labor was their top business problem, down two points from November and five points from October, indicating that labor market conditions may be easing.
Seasonally adjusted, 16 percent of the small-business owners surveyed reported increasing employment an average of 3.0 workers per firm. 13 percent had workforce reductions averaging 2.4 employees, a solid performance for December, adding an average of 0.1 new workers per firm. 49 percent hired or tried to hire one or more workers, 82 percent of these owners reported few or no qualified applicants for the positions they were trying to fill.
17 percent of the owners expressed the view that the current period is a good time to expand facilities, unchanged from November. A net negative four percent expect business conditions to improve over the next six months, a fifteen-point decline from November--but higher than five of the monthly readings in 2006 and typical of readings later in an expansion. Owners expecting higher real sales were down three points to 18 percent--the second highest reading in the last six months. “Not as optimistic as in the first half of the year, but a solid reading,” Dunkelberg said.
27 percent reported higher sales and 26 percent reported lower sales, producing a seasonally adjusted net three percent of all firms with higher sales in the most recent three-month period compared to the prior three months, up three points from November (on a seasonally-adjusted basis).
A net 18 percent of those surveyed expect higher real sales in the coming months, seasonally adjusted, down three points. Owner satisfaction with inventories indicates they are still too high: a negative net seven percent reported stocks “too low” and the net percent of firms intending to increase stocks remained at a net zero percent (seasonally adjusted).
“The plunge in the frequency of reported price hikes was good for the Federal Reserve but not so good for small-business owners,” Dunkelberg said, noting that the net percent of firms raising average selling prices fell nine points in December to eight percent, seasonally adjusted. Price pressures peaked in April, with a net 26 percent of owners raising average selling prices. “The December figure, if it holds, represents a major reduction in inflationary pressure,” Dunkelberg said. Unadjusted, 23 percent reported raising average selling prices, down five points, and 16 percent reported lower selling prices, up three points.
The net percent of firms reporting improved earnings gained three points from November levels. Heavy price-cutting did not help, but firms reported improvements in sales trends. A net 21 percent of all owners reported raising employee compensation, down four points from November. The decline in energy costs that boosted profits later in the year have vanished for the time being, but good weather is producing lower monthly energy bills.
