The National Federation of Independent Business’s Index of Small Business Optimism gained 0.2 points in September, rising to 89.0, but remained at recessionary levels.

The index has been below 93 every month since January 2008 (32 months), and below 90 for 26 of those months, all readings typical of a weak or recession-mired economy.

“The downturn may be officially over, but small business owners have for the most part seen no evidence of it,” said NFIB chief economist Bill Dunkelberg in a statement.

Average employment growth per firm was negative 0.26, and has been negative in all but two months since January 2008. Eleven percent (seasonally adjusted) reported unfilled job openings, unchanged from August and historically very weak Over the next three months, 8 percent plan to increase employment (unchanged), and 16 percent plan to reduce their workforce (up three points), yielding a seasonally adjusted net-negative 3 percent of owners planning to create new jobs, down four points from August, an unexpected reversal in job creation prospects.

The frequency of reported capital outlays over the past six months rose one point to 45 percent of all firms, a point above the 35-year record low. Of those making expenditures, 30 percent reported spending on new equipment (up one point), 15 percent acquired vehicles (up one point), and 10 percent improved or expanded facilities (down one point). Four percent acquired new buildings or land for expansion (up two points) and 10 percent spent money for new fixtures and furniture (up three points).

Six percent characterized the current period as a good time to expand facilities, up two points, but historically low. A net-negative 3 percent expect business conditions to improve over the next six months, a five point improvement from August but still more owners expect the economy to weaken than strengthen.

The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months lost a point, falling to a net-negative 17 percent, 17 points better than June 2009 (the recession bottom) but still indicative of very weak customer activity. Unadjusted, 23 percent of all owners reported higher sales (last three months compared to prior three months, down two points) while 34 percent reported lower sales (up one point). Widespread price cutting continued to contribute to reports of lower nominal sales.

The net percent of owners expecting higher real sales lost three points from August, falling to a net-negative 3 percent of all owners (seasonally adjusted) – a dismal outlook. Not seasonally adjusted, 26 percent expect improvement over the next three months, 37 percent expect declines. 

Small business owners continued to liquidate inventories and weak sales trends gave little reason to order new stock. A net-negative 14 percent of all owners reported gains in inventories (more firms cut stocks than added to them, seasonally adjusted), one point better than August but still very weak. Inventories had been built in the expansion to satisfy the spending of a consumer that was saving virtually nothing. In June 2007, the picture changed with more firms reducing inventory stocks than adding to them. The sudden reduction in spending and increase in saving triggered an extended period of inventory reduction that has not yet run it course.

September is the 30th negative double digit month in a row and the 40th negative month in a row for inventory reductions. Unadjusted, 11 percent reported gains in inventory stocks (up one point), but 24 percent reported inventory reductions (unchanged). 

The weak economy continued to put downward pressure on prices. Twelve percent of the owners (down 2 points) reported raising average selling prices, and 24 percent reported average price reductions (up 1 point). Seasonally adjusted, the net percent of owners raising prices was a negative 11 percent, a 3 point decline. September is the 22nd consecutive month in which more owners reported cutting average selling prices that raising them. Widespread price cutting contributes to the high percentage reporting declining sales revenues. 

A net-negative 33 percent of owners reported positive profit trends, deteriorated three points in September and 29 points worse than the best expansion reading reached in 2005. The persistence of this imbalance is bad news for the small business community. Profits are important for the support of capital spending and expansion. Not seasonally adjusted, 16 percent reported profits higher (down two points), but 45 percent reported profits falling, a three point increase.

Owners continued to hold the line on compensation, with 7 percent reporting reduced worker compensation and 10 percent reporting gains. Seasonally adjusted, a net 3 percent reported raising worker compensation, only five points better than February’s record low reading of negative 2 percent. 

Overall, 91 percent of small business owners reported that all their credit needs were met or that they were not interested in borrowing. Nine percent reported their credit needs were not satisfied, and a record 53 percent said they did not want a loan. Only 3 percent reported financing as their number one business problem. However, 30 percent of the owners reported weak sales as their top business problem, followed by 23 percent citing taxes and 16 percent government regulations.

A near record low 33 percent of all owners reported borrowing on a regular basis. Reported and planned capital spending are at 35-year record low levels, so fewer loans are needed. The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted negative 14 percent (more owners expect that it will be harder to arrange financing), unchanged from August. The Federal Reserve is holding rates at historically low levels, but this is not improving the outlook for the ease of financing expansion.

“Members of Congress fled with no action on important issues such as extending current tax rates, leaving the cloud of uncertainty larger and darker,” said Dunkelberg. “In response, consumer sentiment fell and owner optimism remained anchored solidly in recession territory. Owners won’t make spending commitments when sales prospects remain weak and decisions such as tax rates and labor costs remain so uncertain.”

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