NFIB Report Shows Lack of Sales Still #1 Problem of Small Businesses, Inflation Barely Registers

Inquiring minds are digging into the November NFIB Small Business Trends Report for clues about the health of the economy and the plight of small businesses.

Once again the number one problem facing small business owners is lack of sales. The second biggest concern is taxes. In spite of a huge surge in commodity prices, inflation barely registered as a concern.

From the NFIB Report ...

OPTIMISM INDEX
Optimism rose again in October to 91.7, but remains stuck in the recession zone established over the past two years, not a good reading even with a 2.7 point improvement over September. This is still a recession level reading based on Index values since 1973. However, job creation plans did turn positive and job reductions ceased. The mood for inventory investment weakened a bit even though views of inventory adequacy improved, and an improvement in sales trends produced a marked improvement in profit trends, still ugly, but less so by a significant amount.

LABOR MARKETS
Average employment growth per firm was 0 in October, one of the best performances in years. Reaching the “0” change level raises the odds that Main Street may contribute to private sector job growth for the first time in over a year.

CAPITAL SPENDING
The frequency of reported capital outlays over the past six months rose two points to 47 percent of all firms, three points above the 35 year record low. The percent of owners planning capital outlays in the future fell one point to 18 percent because the environment for capital spending is not good.

INFLATION
The downward pressure on prices appears to be easing as more firms are raising prices and fewer are cutting them. Seasonally adjusted, the net percent of owners raising prices was a net negative five percent, a six point increase from September. Plans to raise prices rose five points to a net seasonally adjusted 12 percent of owners. However, most plans to raise prices have been frustrated by the recession and weak sales during the past few years. On the cost side, four percent of owners cited inflation as their number one problem and only three percent cited the cost of labor, so neither labor costs or materials costs are pressuring owners to raise prices.
If “pricing power” in making a comeback, owners will begin to see a reversal of rather adverse profit trends.

PROFITS AND WAGES
Reports of positive earnings trends posted a seven point improvement in October, registering a net negative 26 percent. Still, far more owners report that earnings are deteriorating quarter on quarter than rising.

CREDIT MARKETS
Overall, 91 percent 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 52 percent said they did not want a loan (13 percent did not answer the question and might be presumed to be uninterested in borrowing as well). Only three percent reported financing as their number one business problem. However, 30 percent of the owners reported weak sales as their top business problem, a major cause of the lack of credit demand observed in financial markets. A near record low 31 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.

Optimism Index

How much of the rise in optimism is due to expectations of a Republican takeover of Congress that happened? It is no secret that small businesses do not much care of Obama.



Most Important Problem

Please compare inflation to sales, taxes, competition from big business, and taxes. Inflation barely registers.



Sales and Taxes are Two Biggest Problems


Inflation Is A Non-Issue


Historically inflation measured as a big concern in the mid-to-late 1970's. Inflation concerns spiked again in the summer of 2008 along with gas prices. In spite of a huge recent rally in commodities there is no fear of inflation now.

From the report "Seasonally adjusted, the net percent of owners raising prices was a net negative five percent, a six point increase from September. Plans to raise prices rose five points to a net seasonally adjusted 12 percent of owners. However, most plans to raise prices have been frustrated by the recession and weak sales during the past few years."

The number of business owners raising prices is a net negative 5%. The profit squeeze continues as small businesses are not able to pass along rising input prices. The result is easy to spot: " far more owners report that earnings are deteriorating quarter on quarter than rising."

There are many more charts in the 23 page PDF. Inquiring minds will want to give it a look.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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