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Small business optimism up slightly in November

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[December 12, 2013]  SPRINGFIELD November may have ushered in the holiday season, but it didn't bring a big jump in enthusiasm among America's small-business owners. The National Federation of Independent Business' widely-watched small-business optimism index was up only slightly under a point (0.9), in fact for a reading of 92.5.

Small-business employment is better than it was a year ago, but not enough to restore 2007-level hiring. Uncertainty remains throughout the sector, as small-business owners brace for the possibility of increased taxes, new regulations and higher health-care costs.

State-specific data isn't available, but Kim Clarke Maisch, state director of NFIB/Illinois, said small-business owners here are as wary as those elsewhere in the country. "The numbers could be worse, but they should be a lot better," she said. "We're still not back where we were before the recession, and there's a lot of uncertainty among small-business owners over where the economy is headed."

Bill Dunkelberg, NFIB's chief economist, said: "The year is not ending on a high note in the small-business sector of the economy. The 'bifurcation' continues, with the stock market hitting record high levels but the small-business sector showing little expansion beyond that driven by population growth.

"There is also a hint that employers are getting an inkling of what Obamacare might mean for labor costs. Concern about the cost and availability of insurance bumped up 3 percentage points after a long period of no real change. Small-business owners who provide health insurance may soon find that their plans are 'unacceptable' to Obamacare and be obliged to either pay more for the coverage or abandon it and pay the benefit in cash. This will be a major source of angst and uncertainty in 2014."

A review of the November indicators is as follows:

  • Job creation. NFIB owners increased employment by a seasonally adjusted average of 0.05 workers per firm in November, which is half the October figure, but positive. Seasonally adjusted, 14 percent of the owners, up 2 percentage points, reported adding an average of 3.7 workers per firm over the past few months. Offsetting that, 12 percent, up 3 points, reduced employment an average of 3.4 workers, producing the seasonally adjusted gain of 0.05 workers per firm overall. The remaining 74 percent of owners made no net change in employment. Fifty-one percent of the owners hired or tried to hire in the last three months, and 44 percent reported few or no qualified applicants for open positions.

  • Hard-to-fill job openings. Twenty-three percent of all owners, up 2 points, reported job openings they could not fill in the current period a positive signal for the unemployment rate and the highest reading since January 2008. Thirteen percent reported using temporary workers, down 2 points from October.

  • Sales. The seasonally adjusted net percent of all owners reporting higher nominal sales in the past three months compared with the prior three months was unchanged at a negative 8 percent. Fifteen percent still cite weak sales as their top business problem. The net percent of owners expecting higher real sales volumes rose 1 point to 3 percent of all owners, after falling a seasonally adjusted 6 points in October a weak showing. Not much help for hiring or inventory investment in those numbers.

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  • Earnings and wages. Earnings trends deteriorated a bit in November, falling to a net negative 24 percent. If these were publicly traded companies, the stock indexes would not look good. The economy remains bifurcated, with large firms doing fairly well and small businesses showing little growth or improvement. Three percent reported reduced worker compensation, and 16 percent reported raising compensation, yielding a seasonally adjusted net 14 percent, down 2 points, reporting higher worker compensation. A net seasonally adjusted 14 percent, up 4 points, plan to raise compensation in the coming months. Overall, the compensation picture remained at the better end of experience in this recovery, but historically weak for periods of economic growth and recovery. With a net 14 percent raising compensation but a net 2 percent raising selling prices, profits will continue to be under pressure.

  • Credit markets. Credit continues to be a nonissue for small employers, with just 4 percent of the owners reporting that all their credit needs were not met, down 2 points. Thirty-two percent reported all credit needs met, and 52 percent explicitly said they did not want a loan. Twenty-nine percent of all owners reported borrowing on a regular basis, up 1 point but a near-record low. The average rate paid on short maturity loans was steady at 5.4 percent

  • Capital outlays. The frequency of reported capital outlays over the past six months fell 2 points to 55 percent, stuck in the "mid-50s" since recovering in 2012 from the lows of 45 reached in late 2009 and early 2010. The small-business sector appears to still be in "maintenance mode," with little expansion planned in the future. The percent of owners planning capital outlays in the next three to six months rose 1 point to 24 percent. Capital spending is at its highest point since early 2008 but has been stuck well below normal levels for several years, threatening the improvements in productivity needed to raise real wages.

The report released this week is based on the responses of 762 randomly sampled small businesses in NFIB's membership, surveyed throughout the month of November. Download the complete study at http://www.nfib.com/sbetindex.

All net percentages are seasonally adjusted unless otherwise noted. The net percentage is the percent with a favorable response less the percent of owners with an unfavorable response.

[Text from file received from National Federation of Independent Business, Illinois]

The National Federation of Independent Business is the nation's leading small-business association. A nonprofit, nonpartisan organization founded in 1943, NFIB represents the consensus views of its members in Washington, D.C., and all 50 state capitals. The NFIB Research Foundation conducts some of the most comprehensive research of small-business issues in the nation. NFIB's Small Business Economic Trends is a monthly survey of small-business owners' plans and opinions. Decision-makers at the federal, state and local levels actively monitor these reports, ensuring that the voice of small business is heard.

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