The latest National Federation of Independent Business (NFIB) Small Business Economic Trends report shows small-business owners were rattled by uncertainty in October.
The NFIB Small Business Optimism Index ticked up a meager 0.8 points to 94.9. Five of the 10 components posted a gain, three declined, and two remained unchanged in October. Nearly half of the respondents cited taxes or regulations and red tape as their “single most important business problem.”
Owners who expect better business conditions in the next six months fell seven points, which means that more owners now expect that conditions will worsen. Only 9 percent of small-business owners think that now is a good time to expand, up 2 percent from September. Among owners who said that now is a bad time to expand, the political climate was the second most frequently cited reason.
“Small-business owners need predictability. What we’re seeing in our data is that the political climate creates the opposite,” NFIB Chief Economist Bill Dunkelberg said in a press release. “Government actions affect basic business decisions, and owners are unwilling to take risks, make investments, or hire new employees as long as politicians and regulators keep them guessing about the future.”
Fifty-five percent reported hiring or trying to hire (down 3 points), but 48 percent reported few or no qualified applicants for the positions they were trying to fill. Twenty-eight percent of all owners reported job openings they could not fill in the current period, up 4 points from the previous month. This indicates that labor markets remain tight and the unemployment rate will remain steady at what many call “full employment.”
Fifteen percent reported using temporary workers, unchanged. A seasonally adjusted 10 percent plan to create new jobs, unchanged from September. Job creation plans were strongest in manufacturing and professional services.
The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months compared to the prior three months dropped 1 percent to a net negative 7 percent. Seasonally adjusted, the net percent of owners expecting higher real sales volumes fell 3 points to a net 1 percent of owners, a weak showing, NFIB said. With weak sales prospects, hiring and inventory investment likely will be weak going forward.
Fifty-seven percent reported capital outlays, up 2 points from September, but trending down on a quarterly basis. The percentage of owners making an outlay peaked for this recovery in July 2015 at 61 percent, revisited that percentage in January but has faded since.
The lack of inflation continues to contribute to the Federal Reserve’s frustration, according to the report. The net percent of owners raising average selling prices was 2 percent (up 3 points); this is in contrast to a net 70 percent raising average prices in the 1970s.
Clearly the small-business sector can produce inflation, the report said. Thirteen percent of owners reported reducing their average selling prices in the past three months (down 1 point) and 13 percent reported price increases (up 1 point). But for most small-business owners, growth is too low to put enough pressure on supply to produce price increases, the report said, with the exception of new houses where supply is insufficient and prices are rising.
Four percent of owners reported that all their borrowing needs were not satisfied, down 2 points from September. Twenty-nine percent reported all credit needs met (down 3 points), and 53 percent explicitly said they did not want a loan, up 4 points.