Washington, DC, March 14, 2006--Confirming their view that the nation’s economy is moving solidly ahead, small-business owners nudged the February NFIB Small-Business Optimism Index up four-tenths of a point to 101.5 (1986=100), reinforcing the positive-growth message that they have been signaling for some time.
The plans of those business owners--who produce half of the GDP--to increase capital spending, build inventories and create jobs confirm that the economy is advancing steadily. The data show little change from January, but the change reported is in the right direction.
“First-quarter growth will be strong,” predicted NFIB chief economist William Dunkelberg. “Of concern, however, was a jump in higher-average selling prices that could dampen prospects for a decline in inflation. But historically strong employment figures are good news for job markets in coming months.”
There was a four-point increase (to 28 percent) among those who expect higher real sales over the next six months; the number of those who see the current period as a good time to expand was unchanged from January’s 20-percent level. A net 3 percent expect business conditions to improve over the next six months, down three points, but typical at this stage of an expansion.
More than one-third (35 percent) reported plans to make capital expenditures early this year, a hike of three points. The frequency of outlays over the past six months remained solid at 63 percent, up a point from January. All categories improved spending during the period: 46 percent spent on new equipment, 26 percent acquired vehicles and 15 percent improved or expanded their facilities; 16 percent bought fixtures and furniture, while 10 percent acquired new buildings or land for expansion.
Plans to add to inventories remained historically high at a net 7 percent, up two points from January, a sign that inventory investments could boost growth early in 2006 unless sales are so strong that stocks can't be built. Strong sales have depleted inventories. Seasonally adjusted, a net 1 percent reported increasing inventories, down two points and a net-negative 2 percent reported inventories too low.
Solid overall reports of increased quarter-over-quarter sales volumes gains rose four points to a net 6 percent. Seasonally unadjusted, 29 percent reported higher sales.
Adding an impressive average of nearly half-an-employee per firm in February, seasonally adjusted, 15 percent of owners increased employment while 11 percent reported workforce reductions. Nearly half (49 percent) hired, or tried to hire, one or more workers, and 81 percent of those were unable to find qualified applicants. Unfilled openings were unchanged from the 26 percent January levels despite strong hiring.
Looking ahead three to six months, 26 percent confirm plans to create new jobs, with only 4 percent planning reductions; yielding a seasonally-adjusted net 16 percent who foresee creating new positions, just a point lower than January, and historically very strong.
The steady rate of price increases is causing concerns about inflation and a strong first quarter won't offer much opportunity for price reductions. In February, the net-percent raising average selling prices rose four points to a net 22 percent, equal to its 12-month average.
Regular borrowing rose a point to 38 percent, a little high but still in the normal range of borrowing activity. There was no sign that firms are increasingly depending on borrowed capital to operate.
The net-percent reporting loans harder to get in recent months fell a point to a net 5 percent, little changed for more than a decade. Only 4 percent of the owners cited the cost and availability of credit as their top business problem. Thirty-seven percent reported all their credit needs were met, compared to 6 percent who reported problems obtaining the financing they wanted.
