SBET: Small-Business Owners Optimistic About Econo
Washington, DC, November 15, 2006--Improved expectations for economic growth and a need to add to inventories sent the National Federation of Independent Business Optimism Index up to 100.7 in October.
Five of the 10 components of the index improved, led by a nine-point hike among those who said they expect a better economy in the coming months, and one was unchanged.
Seasonally adjusted, small firms produced solid growth in October, with 14 percent increasing average employment by 3.1 workers per firm, while 9 percent trimmed workforces by an average 3.5 employees. Fifty-five percent hired, or tried to hire, one or more workers, unchanged from August and September, and still one of the highest readings in five years. Twenty-seven percent reported unfilled job openings, another sign of tight labor markets. More than eight in 10 could find few or no qualified applicants for unfilled positions. The top business problem for 15 percent of those responding was the availability of qualified labor, up another point and the highest reading since 2001.
Looking ahead three months, a seasonally adjusted net 16 percent (the percent planning reductions subtracted from the percent planning to increase employment) are planning to create new jobs, down a point from August and September but one of the highest readings since 2004. Job-creation plans were positive in all industry groups except agriculture. Regionally, New England and the Mid-Atlantic states were weak, with more firms planning reductions than increases in the Mid-Atlantic region. Overall, job creation plans are weaker in the Northern states than in the South.
The net-percent of firms raising average selling prices fell four points to 16 percent, seasonally adjusted. Since April, the net-percent raising average selling prices has declined 10 points.
"Price pressures are fading, and it's not just the construction sector that is bringing the pressures down," said NFIB Chief Economist William Dunkelberg, "retail inflation is easing as well." Unadjusted, one-fourth confirmed raising average selling prices, down two points, and 12 percent reported lower prices, up four points. Hikes were most frequent among wholesalers and manufacturers. Increases among construction firms faded substantially. Those in finance, insurance and real estate that reported lower prices have outnumbered those raising prices for months, reflecting the weakness in housing.
The net-percent reporting earnings improvements lost six points from September, falling to the average for the year, no surprise in view of weaker reports of sales gains and a decline in the frequency of price hikes. A net 23 percent increased worker compensation, down five points from September.
Of the 25 percent reporting higher earnings, more than half cited stronger sales and 5 percent each credited less expensive labor, lower materials costs and higher selling prices. For the one-third reporting lower earnings compared to the previous three months, 36 percent cited weaker sales, 15 percent cited higher materials costs (energy), 12 percent blamed lower selling prices and 6 percent each pointed to higher labor, insurance and financing costs. Three percent named higher taxes and regulatory costs.
Owners were pleased with October's inventory levels with a net 0 percent reporting gains, down one point (seasonally adjusted). Unadjusted, those with increases nearly matched those with drawdowns. In construction, 6 percent had gains and 16 percent had reductions. Construction-firm owners are approaching an acceptable balance, with reports of high-versus-low stocks balancing at 6 percent each. For all firms, a net-negative 3 percent reported stocks too low, three points better than September, and an indication that excess inventories did not come from construction.
