Small business owners are losing some of their optimism and planning to do less hiring in the months ahead, according to a widely cited survey by the National Federation of Independent Business.
[IMGCAP(1)]The NFIB said that after six months of gains, its Small-Business Optimism Index fell by almost 2 points in March, settling at 92.5. After a promising start to the year, nine out of the 10 components that make up the index declined last month, especially hiring plans and expected real sales growth. Those two factors took a significant dive, despite owners reporting the largest increase in new jobs per firm in a year.
The March survey results ended what appeared to be steady, albeit slow, trend of improvement for the small-business sector of the economy. The proportion of business owners who reported inflation as their No. 1 business problem now stands at 9 percent, an increase from 6 percent in January. Reports of increases in average selling prices rose in March, and a net 21 percent of small business owners said they plan to raise their selling prices in the months ahead.
Job creation in March was strong, according to the index. The net change in employment per firm at a seasonally adjusted rate was 0.22, far above January’s flat reading of zero. Seasonally adjusted, 10 percent of the owners added an average of 3.1 workers per firm over the past few months, and 13 percent reduced employment an average of 2.1 workers per firm.
The remaining 77 percent of small business owners made no net change in employment. Forty-four percent of owners hired or tried to hire in the last three months and 32 percent reported few or no qualified applicants for positions.
The ability to find qualified applicants for available jobs remains a problem for many small-business owners. The proportion of owners who reported hard-to-fill job openings fell 2 points to 15 percent, the second monthly decline since reaching 18 percent in January.
The net percent of owners planning to create new jobs is in its fourth month of decline. March’s net “0” reading for planned job creation was 4 points lower than February and 7 points lower than November 2011. The reports of actual hiring over the past few months are the best since February 2011, making March the best job creation month in a year. However, the decline in the proportion of owners with a hard-to-fill opening and in the percent of owners planning to increase the number of workers employed indicate growing weakness in the job market and are a harbinger of a rising unemployment rate.
“March came in like a lion, with Main Street seeing significant job growth in March—but it appears to have gone out like a lamb, and with no cheer in the forward-looking labor market indicators,” said NFIB chief economist Bill Dunkelberg in a statement Tuesday. “What could have been a trend in job growth is more likely a blip. And what looked like the start of a recovery in profits fizzled out. The mood of owners is subdued—they just can’t seem to shake off the uncertainties out there, and confidence that the management team in Washington can deal with that effectively is flagging. What we saw in March is painfully familiar. This was the same pattern of growth followed by months of decline from 2011. History appears to be repeating itself—and not in a good way.”
Owners who reported higher nominal sales over the past three months (seasonally adjusted) gained a surprising 8 points, rising to a net 1 percent, and providing the best reading since December 2007.
[IMGCAP(2)]However, even with the improvements in retail sales in recent months, 22 percent of owners surveyed still reported “weak sales” as their top business problem. Seasonally unadjusted, 23 percent of all owners reported higher sales (last three months compared to prior three months, up 3 points), while 31 percent reported lower sales (down 1 point). Expectations for higher real sales dropped, falling 4 points to a net 8 percent of all owners on a seasonally adjusted basis. Not seasonally adjusted, 42 percent expect improvement over the next 3 months (up 1 point) and 16 percent expect declines (down 5 points). A lack of sales remains a problem for owners with 22 percent reporting “poor sales” as their top business problem.
The frequency of reported capital outlays over the past six months fell 5 points to 52 percent, a reversal of the gains made during the prior two months. Of those small businesses making expenditures, 36 percent reported spending on new equipment (down 4 points), 20 percent acquired vehicles (down 3 points), and 13 percent improved or expanded facilities (unchanged).
Four percent of the 757 small businesses surveyed by the NFIB in March reported that they acquired new buildings or land for expansion (down 1 point) and 11 percent spent money for new fixtures and furniture (down 1 point). Plans to make capital outlays in the next three to six months fell by one point, with 22 percent of owners indicating they are likely to make the investment.
Seven percent of owners characterized the current period as a good time to expand their facilities, on a seasonally adjusted basis, and the net percent of owners expecting better business conditions in six months settled at a negative 8 percent. Not seasonally adjusted, 21 percent said they expect deterioration (up 4 points), and 23 percent expect improvement (up 2 points). A net 8 percent of all owners expect improved real sales volumes, down 4 points from February.
Financing remains low on the list of concerns of small-business owners. Only 4 percent cited financing as their top business problem, compared to 20 percent citing taxes and 19 percent citing unreasonable regulation. Ninety-two percent reported that all their credit needs were met or that they were not interested in borrowing. Twenty-seven percent reported that all their credit needs have been met, compared to 8 percent who reported that not all of their credit needs were satisfied.
Just over half of owners said they did not want a loan, and 13 percent did not respond to the question. Thirty-one percent of all small business owners reported borrowing on a regular basis. A net 11 percent reported loans are “harder to get” compared to their last attempt (asked of regular borrowers only), also down 3 points. The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted negative 11 percent (indicating that more owners anticipate that it will be “harder” to arrange financing than easier), which was 1 point worse than in February.
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