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NFIB Index of Small Business Optimism Shows Acceleration in Economic Activity

Posted on: November 11, 2010

The National Federation of Independent Business Index of Small Business Optimism gained 2.7 points in October rising to 91.7. Although the increase is not a huge move, it is an improvement, perhaps anticipating an acceleration in economic activity. However, the Index still remains in recession territory.

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. Ten percent (seasonally adjusted) reported unfilled job openings, down one point and historically very weak. Over the next three months, eight percent plan to increase employment (unchanged), and 13 percent plan to reduce their workforce (down three points), yielding a seasonally adjusted net one percent of owners planning to create new jobs, a four point gain from September.

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. Of those making expenditures, 32 percent reported spending on new equipment (up two points), 16 percent acquired vehicles (up one point), and 12 percent improved or expanded facilities (up two points). Three percent acquired new buildings or land for expansion (down one point) and nine percent spent money for new fixtures and furniture (down one point). Not great, but showing some strengthening tendencies. 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.

INVENTORIES AND SALES
The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months improved four points to a net negative 13 percent, 20 points better than May 2009 (the recession bottom). The net percent of owners expecting higher real sales gained four points from September, rising to a net one percent of all owners (seasonally adjusted) . Small business owners continued to liquidate inventories and weak sales trends gave little reason to order new stock. A net negative 16 percent of all owners reported gains in inventories (more firms cut stocks than added to them, seasonally adjusted), two points worse than September.

About NFIB
The NFIB Research Foundation has collected Small Business Economic Trends Data with Quarterly surveys since 1973 and monthly surveys since 1986. The sample is drawn from the membership files of the National Federation of Independent Business (NFIB). Each was mailed a questionnaire and one reminder. Subscriptions for twelve monthly SBET issues are $250. Historical and unadjusted data are available, along with a copy of the questionnaire, from the NFIB Research Foundation. You may reproduce Small Business Economic Trends items if you cite the publication name and date and note it is a copyright of the NFIB Research Foundation. © NFIB Research Foundation. ISBS #0940791-24-2. Chief Economist William C. Dunkelberg and Policy Analyst Holly Wade are responsible for the report.

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