Year Begins on Firm Economic Footing for Small Bus
Washington, DC, February 15, 2006--America’s small businesses opened 2006 on a firm footing, according to the latest NFIB Small-Business Economic Trends report which revealed that the January Small-Business Optimism Index declined only three-tenths of a point to 101.1 (1986=100).
Overall, the survey anticipates a solid quarter of growth with tightening labor markets and little new pressure on prices.
Boosting the Optimism Index were two factors: a strengthening labor market, marked by a two-point gain in the net percent of owners who plan to increase employment, and a four-point jump among those reporting job openings.
“This is great news for small businesses,” NFIB Chief Economist William Dunkelberg said. “It points to solid job creation and continued downward pressure on the unemployment rate. Equally important are the data showing that there was no change in the net percent of those firms raising prices (18 percent), indicating no new pressure on prices.”
Overall, the data point to a solid start to 2006, especially for jobs and inventory investment. Capital spending appears solid, profits remain reasonably strong and credit is available to small businesses despite higher interest rates.
In January, 10 percent of the owners reported increasing employment, and 14 percent claimed workforce reductions. Nearly half (48 percent) hired or tried to hire one or more workers, and more than eight in 10 of those reported few or no qualified applicants for open positions, an indication of a tight labor market.
Hiring plans overall were solid in all industry groups, with significant strength in manufacturing, construction and the wholesale trades. A net 17 percent of small employers plan to increase employment in the next three months, indicating that this year could be a fairly good period for manufacturers if the economy holds and the dollar weakens, Dunkelberg said.
Capital spending over the past six months has been firm, with 62 percent of all firms reporting outlays, a decline of only one point from December. Forty-six percent reported spending on new equipment, one-fourth acquired vehicles and 13 percent improved or expanded facilities. Fifteen percent spent for new fixtures and furniture; 8 percent acquired new buildings or land for expansion.
Those planning capital expenditures early in the year fell a point to 32 percent of all firms. Leading the capital spending parade were wholesale trades (49 percent), manufacturers (40 percent) and agricultural firms (37 percent).
The number of those who view the current period as a good time to expand facilities slipped a point from December to 20 percent. A net 6 percent expect business conditions to improve over the next six months, down six points. A net 24 percent expect higher real sales in the next three months, up three points from December—the force behind the need to hire additional employees and add to inventories.
Owners planning to add to inventories remained historically high at a net 5 percent. Those in the construction industry indicate they are planning aggressive additions to inventories, with 16 percent foreseeing additions, compared to 9 percent planning reductions. Twenty-one percent of small manufacturers plan inventory additions, while 10 percent expect reductions. More than one-third (34 percent) of wholesale trades firms plan increases, and only one in five see cutbacks ahead. Retailers say they will build stocks early in the year; 31 percent plan additions, 13 percent reductions.
