Small business owners appear to be “skeptically optimistic” about the state of the economy, according to a new survey.

The National Federation of Independent Business reported in its monthly survey that small business owner optimism rose 2.1 points to 88.6. The gain was primarily a result of improved expectations for future business conditions and expected real sales volumes.

“The gain in the index clearly signals that the worst is likely over, but so far there has been no ‘surge’ in sentiment as many components still remain at historically low levels,” said NFIB chief economist William Dunkelberg in a statement.

The “job-generating machine” is still in reverse, the NFIB found. Eight percent (seasonally adjusted) of the small business owners it polled in August reported unfilled job openings, down 1 point from July. Over the next three months, 13 percent plan to reduce employment (down 1 point), and 7 percent plan to create new jobs (down 1 point), yielding a seasonally adjusted net 0 percent of owners planning to create new jobs, a 3-point improvement over July.

Wage pressures are declining, as owners not only reduce employment, but also the compensation of their remaining workers. Reports of compensation cuts and increases remained in record territory, with 10 percent reporting reduced worker compensation, and 12 percent reporting increased worker compensation. Seasonally adjusted, a net 6 percent reported raising worker compensation, unchanged from July and only 3 points above June’s record low reading.

Reports of positive profit trends improved 5 points to a net negative 40 percentage points. “Although profit trends improved, the fact that these negative reports persist is bad news for the small business community,” said Dunkelberg. Not seasonally adjusted, 16 percent reported profits higher (up 3 points), but 50 percent reported profits falling (down 2 points). Of those owners reporting lower earnings compared to the previous three months, 62 percent cited weaker sales.

The net percent of all owners (seasonally adjusted) reporting higher sales in the past three months remained negative at minus 27 percent, but 7 points better than the record low set in March and revisited in July.  Expectations for gains in real sales rebounded, gaining 6 points from the July reading to a net negative 5 percent expecting improvements. Although still negative, this latest rebound in expectations is 26 points better than the March record low level.

Plans to make capital expenditures over the next few months fell 2 points to 16 percent, revisiting the survey record low reached in 1975 and in March of this year. Five percent characterized the current period as a good time to expand facilities, unchanged from July and historically very low. But, a net 10 percent expect business conditions to improve over the next six months, up 13 points from July. The frequency of reported capital outlays over the past six months fell 1 point to 45 percent of all firms, a record low reading since such data was first collected in 1979.

Overall, loan demand is down due to widespread postponement of investment in inventories and historically low plans for capital spending. Thirty-two percent of the small business owners reported regular borrowing, down 1 point from July. Of those borrowers, 30 percent reported all their borrowing needs had been met (up 2 points) compared to 7 percent who reported problems obtaining desired financing (down 3 points). The recession is now 21 months old, much longer than any other time since the 1980-82 period, so more “stress” is likely as owners wait for customers to show up and for their cash flow to improve.

The net percent of owners reporting that loans are harder to get fell 1 point to 14 percent of all firms. But only 4 percent of the owners reported “financing” as their No. 1 business problem. Pre-1983, as many as 37 percent cited financing and interest rates as their top problem.


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