Small Business Optimism Stagnant

The Index of Small Business Optimism gained 0.2 points in September, rising to 89, according to the National Federation of Independent Business.

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 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.

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 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 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 than raising them.  Widespread price cutting contributes to the high percentage reporting declining sales revenues.  

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 credit needs 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.

“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.”