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NFIB: Small Business Economy Stays Steady, Despite Doom and Gloom

September 12, 2019, 07:16 AM
Filed Under: Economy

The NFIB Small Business Optimism Index fell 1.6 points to 103.1, remaining within the top 15 percent of readings. Overall, August was a good month for small business. However, optimism slipped because fewer owners said they expect better business conditions and real sales volumes in the coming months. Job creation accelerated, positive earnings trends improved and quarter-on-quarter sales gains remained strong.

“In spite of the success we continue to see on Main Street, the manic predictions of recession are having a psychological effect and creating uncertainty for small business owners throughout the country,” said NFIB President and CEO Juanita D. Duggan. “Small business owners continue to invest, grow and hire at historically high levels, and we see no indication of a coming recession.”

The Uncertainty Index rose four points in August, suggesting that small business owners are reluctant to make major spending commitments. In fact, the main impediment to more growth is the record level of no qualified workers.

Capital spending posted strong improvements in August with 59 percent of owners reporting capital outlays, up two points from the month before. Of those making expenditures, 42 percent reported spending on new equipment, 24 percent acquired vehicles and 18 percent improved or expanded facilities. Four percent acquired new buildings or land for expansion, while 15 percent spent money for new fixtures and furniture.

Twenty-eight percent are planning capital outlays in the next few months. Plans to invest were the strongest in manufacturing (35 percent), agriculture (30 percent) and wholesale trades (30 percent).

Owners raising average selling prices fell five points to a net 11 percent (seasonally adjusted), reversing July’s seven point surge. Price hikes were the most frequent in wholesale trades (14 percent lower, 30 percent higher), the sector most likely to feel the effects of tariffs.

Owners planning price hikes fell five points to a seasonally adjusted net 17 percent. Eleven percent reported cutting selling prices in recent months, and only 2 percent plan to do so. That suggests most price cutting is an unplanned response to market conditions, which is a healthy process. The frequency of reports of positive profit trends improved four points (after two points in July) to a net negative one percent reporting quarter on quarter profit improvements, the third highest reading in the survey’s history.

A seasonally adjusted 6 percent of all owners reported higher nominal sales in the past three months. Consumer spending remains exceptionally strong and consistent with small business owners’ reports of positive sales trends.

“The August report does not show a sign of inflation or reflect what the Fed has noted,” said NFIB Chief Economist William Dunkelberg. “The pessimism we’re seeing is contagious, even though the actual economy is thriving. Expectations can be infected and, as a result, could turn sour. All the talk about an impending recession can create a false reality, but it doesn’t make it right. Main Street is continuing to produce and remains strong in spite of the headlines.”

Falling one point from last month, a net one percent of owners reported inventory increases, indicating that inventory rebuilding is still underway although at a slower pace. The net percent of owners viewing current inventory stocks as “too low” fell three points to a net negative six percent. The net percent of owners planning to expand inventory holdings fell one point to a net two percent.

Owners reporting higher compensation fell three points to a net 29 percent of all firms. Plans to raise compensation rose two points to a net 19 percent.

As seen in NFIB’s August Jobs Report, a record 27 percent of owners reported finding qualified workers is their No. 1 business problem. Two percent reported that financing was their top business problem compared to 14 percent citing taxes, and 14 percent citing regulations and red tape.

View the NFIB Small Business Economic Trends Survey.

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