Washington, D.C., November 9, 2005--Get ready for a strong fourth quarter, say American small-business owners, whose upbeat views of the days ahead triggered a nearly-four-point jump in the October NFIB Small-Business Optimism Index to 103.7 and confirmed previous findings that recent hurricanes had little effect on the nation’s overall economy.
Six of 10 index components rose during the month. Leaping 21 points to 38% was the net percent expecting higher real sales. Up 11 points to a net 14% were owners forecasting a better economy ahead. Reports of favorable earnings trends increased 10 percentage points. Upswings were also found among those predicting that now is a good time to expand, owners planning to increase inventories and those who expect less difficulty obtaining credit.
“The job creation outlook is very good and the fourth quarter should produce solid employment gains,” said NFIB Chief Economist William Dunkelberg. More firms plan to create new jobs than at any time since the dot-com boom. Except for agriculture and retail trades, hiring plans were solid in all industries with financial services and construction topping the list, followed by professional service firms. Regionally, South Atlantic states were the strongest.
Nearly one-fifth of those surveyed reported adding employees in October, compared with 8 percent who trimmed their rolls. Fifty-two percent hired or tried to hire one or more employees, but eight of 10 of those owners were unable to find qualified workers. The average reported increase in employment per firm was .46, a survey record.
Even with the dual impact of weather and energy problems, small-business owners continued to spend over the past six months. Capital outlays, although down six points, were reported by nearly two-thirds. Almost half purchased new equipment, 24 percent bought vehicles and 13 percent improved facilities. Sixteen percent added new fixtures and furniture while 8 percent acquired new buildings or land for expansion.
The share of those who plan to make capital expenditures in the fourth quarter fell two points to 29 percent of all firms, still a strong number. Climbing three points to 22 percent was the segment of owners who said now is a good time to expand facilities. Spending plans were most frequent in manufacturing (44 percent).
Seasonally adjusted, a net-negative 2 percent reported inventories too low, a historically lean posture. Manufacturers’ positions were balanced among those reporting inventories “too high” versus “too low.” Inventory investment plans should maintain this balance: 17 percent plan to add, 17 percent foresee cutbacks. Similarly, construction firms were nearly balanced—4 percent too high, 5 percent too low. But wholesalers had a different view: 15 percent expect to add to their holdings, while 35 percent plan reductions into the holidays.
Reports of rising sales volumes, quarter-over-quarter, surged strongly, up nine points to a net 14 percent of all firms. Manufacturing is still on solid ground, as evidenced by a 12-point hike to 47 percent among firms that had sales gains; 40 percent of those in construction and retailing also reported increases.
Inflation remains high, but it isn’t accelerating. Firms reporting higher selling prices dropped three points to 29 percent, but those noting reductions rose two points. Seasonally adjusted, a net 22 percent claimed higher selling prices, down three points. Firms in all industries are raising prices, led by construction where 38 percent reported higher-average selling prices and wholesale trades where 41 percent boosted their average tickets.
Earnings-gains reports, driven by strong sales, leapt a strong 10 points in October. The number of those reporting higher earnings rose five points to 27 percent and more than two-thirds of them attributed their increases to stronger sales.
