Washington, DC, May 9, 2006--Small-business optimism rose last month, reversing March’s slump by more than two points to 100.1 (1986=100) and returning to its historical levels, according to the NFIB Small Business Economic Trends report.
Discounting March figures as a “fluke,” researchers said the reliable entrepreneur-outlook index has hovered around the 100 mark since April 2003 when it jumped five points, signaling the beginning of an expansion.
The April data revealed a solid month of activity. Profit trends and sales gains moved to historically high levels, capital spending was strong, inventories appeared lean and labor-market indicators, especially job-creation plans, surged to wipe out March declines.
More than one-fourth of those surveyed (28 percent) plan to create new jobs over the next three to six months, while just 4 percent plan reductions, a seasonally adjusted 7-point rise over March. Overall, job creation plans in all industry groups were strong, especially in manufacturing and construction. The strongest regions were Mountain, Mid-Atlantic and South Atlantic states.
Seasonally adjusted, 11 percent reported employment increases in April, but 14 percent had reductions. Those expanding employment more than offset the impact of reductions, producing a net gain of 0.2 employees per firm. Nearly half (49 percent) hired or tried to hire one or more workers; 84 percent of those could find few or no qualified applicants for unfilled positions; 31 percent reported unfilled openings, an 8-point surge from March.
With solid profits, price hikes matching compensation gains and the business outlook optimistic, it’s a good environment for continued capital spending. Those planning to make capital expenditures in the near future rose 3 points to 33 percent, mainly in wholesale trades, professional services and agriculture. Now is also a good time to expand facilities, said 18 percent of owners, and a net-negative 3 percent said business conditions should improve over the next six months, a 2-point improvement from March and typical of this stage of an expansion. (More owners think it can’t “get better” than it is now than think it can improve even more.) The share of owners expecting better real-sales volumes rebounded to 21 percent, a gain of 9 points. (That number accounted for nearly 40 percent of the improvement in the Optimism Index.)
April’s capital spending was solid, but not exceptional. The frequency of reported capital outlays over the past six months fell 4 points to 62 percent of all firms. Forty-six percent reported spending on new equipment, 25 percent acquired vehicles and 16 percent improved or expanded their facilities. Seven percent acquired new buildings or land for expansion, and 16 percent bought new fixtures and furniture.
But there are troubling signs of inflation, forecasted by a 9-point spike (seasonally adjusted) in the net percent of firms raising average selling prices. Forty-five percent of construction firms hiked selling prices, while only 3 percent reduced them.
“Price boosts in the service sectors were muted,” said NFIB Chief Economist William Dunkelberg, “especially in finance, insurance and real estate, where equal shares raised and lowered their prices.” Prospects for reduced prices are weak given expected strength in sales and in labor markets; retail price increases were strong and pricing by manufacturers may be influenced by a weakening dollar--stronger export demand will support higher prices. “Much of the strength in pricing is coming from the housing market, and that could fade substantially this year,” Dunkelberg added.
Strong sales gains produced a 6-point slide from March in the percent of firms reporting higher inventory stocks, seasonally adjusted.
