Small Business Optimism Falls to 1991 Levels

Washington, DC, February 13, 2008 -- The National Federation of Independent Business Index of Small Business Optimism fell 2.8 points in January to 91.8, the lowest reading since January 1991.

"The Index is sending a recession signal," said NFIB Chief Economist William Dunkelberg, adding, "But by comparison, this January reading is more of a recession in expectations than in hard economic data. Hiring plans and job openings are much stronger today than in 1991."

Prior to the first Fed rate cut and recession warnings on September 18, 24 percent of owners expected the economy to improve in the coming months. Twelve days after the announcement, only 5 percent expected the economy to improve. Since then, optimism among small business owners has declined after each Fed rate cut.

Employment among small business owners was down.Twelve percent of owners increased hiring by an average of 3.5 workers per firm, and 12 percent reduced employment an average of 4.6 workers per firm. Forty-five percent of the owners hired or tried to hire, down 12 points from last September, and two points from December. Eighty-two percent of those trying to hire reported few or no qualified applicants for the job openings they were trying to fill.

Over the next three months, 18 percent plan to create new jobs (up three points), and 8 percent plan workforce reductions (down a point).

Job creation plans were positive in all industry groups but weakest in construction. Service firms reported the strongest job creation plans. The hottest regions were the West-South Central and Mid-Atlantic regions. Net job creation plans hit zero in New England, an improvement over December.

The net percent of small business owners reporting loans harder to get in recent months was unchanged at 7 percent, typical of readings for the past several years.

Dunkelberg said, "With 34 percent of owners reporting all their credit needs met (up 2 percent) and only 5 percent reporting problems obtaining desired financing (down two points), it is clear that among small business owners there are no new credit problems, and there is no credit crunch."

The inventory reductions at the end of 2007 continued into 2008, as a net negative 4 percent of those surveyed reported gains in inventory stocks (seasonally adjusted). Unadjusted, 11 percent reported gains, and 21 percent reported inventory reductions. In construction, 4 percent reported gains, and 22 percent reported reductions.

"Inventory reduction was heavy in the fourth quarter and will continue at a strong pace in construction into the first quarter of 2008," Dunkelberg said.

The percent of owners citing inflation as their No. 1 problem has risen to 8 percent, double last year's numbers and the highest reading since the early 1980s.