Optimism among small business owners improved slightly last month, according to a new survey, but business owners nevertheless remain depressed over the economy.

The National Federation of Independent Business Index of Small Business Optimism rose slightly in January to 89.3, 1.3 points above December’s reading. January’s index is 8.3 points higher than the survey’s second lowest reading reached in March 2009 (the lowest reading was 80.1 in 1980).  But optimism has stalled in spite of the improvements in the economy in the second half of 2009.  The quarterly Index readings have been below 90 for 7 quarters, indicative of the severity and pervasiveness of this recession.

“Small business owners entered 2010 the same way they left 2009, depressed,” said NFIB chief economist William Dunkelberg. “The biggest problem continues to be a shortage of customers.”

Owners reported workforce reductions that average 0.52 workers per firm, basically unchanged for the past several months. Nine percent of the owners increased employment by an average of three workers per firm, but 19 percent reduced employment an average of 3.9 workers per firm (seasonally adjusted). 

Ten percent (seasonally adjusted) reported unfilled job openings, unchanged from December but historically low. Over the next three months, 10 percent plan to reduce employment (down five points), and 10 percent plan to create new jobs (up 2 points), yielding a seasonally adjusted net negative 1 percent of owners planning to create new jobs, a one-point improvement but still more firms planning to cut jobs than planning to add. 

The frequency of reported capital outlays over the past six months rose three points to 47 percent of all firms, an improvement from December’s record-low reading, but historically very weak. Capital spending is on the sidelines (as is the demand for loans to finance these activities). Of those making a capital outlay, 32 percent reported spending on new equipment (up two points), 16 percent acquired vehicles (up one point), and 10 percent improved or expanded facilities (down one point). Three percent acquired new buildings or land for expansion (down one point), and 10 percent spent money for new fixtures and furniture (up 3 points). 

Plans to make capital expenditures over the next few months rose two points to 20 percent, four points above the 35-year record low. Five percent characterized the current period as a good time to expand facilities, down two points from December. Only a net 1 percent expects business conditions to improve over the next six months, down one point from December and a very pessimistic reading. 

The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months remained negative at negative 26 percent, one point worse than December. Unadjusted, 17 percent of all owners reported higher sales (unchanged) while 47 percent reported lower sales (up three points) quarter over quarter.

The net percent of owners expecting real sales gains improved four points to a net 3 percent of all owners, 34 points better than the March 2009 record low level.   

Small business owners continued to liquidate inventories and weak sales trends gave little reason to order new stocks. A net negative 21 percent of all owners reported gains in inventory stocks (more firms cut stocks than added to them, seasonally adjusted), seven points better than December’s record liquidation reading (monthly surveys were started in 1986). This is the 22nd negative double-digit month in a row and the 32nd negative month in a row.

The weak economy continued to put downward pressure on prices. Eleven percent of the owners reported raising average selling prices, but 27 percent reported average price reductions. Widespread price cutting contributed to the reports of lower nominal sales. Seasonally adjusted, the net percent of owners raising prices was a negative 18 percent. More firms reduced prices than increased them in all industry groups.

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