But it’s still “far below” regular expansion readings, group says The nation’s small-business optimism rose 1.4 points to 96.6 in May, the highest index reading since September 2007. That’s according to the National Federation of Independent Business’ (NFIB’s) latest index of small-business optimism released June 10. Even though May represents the third straight month with […]
But it’s still “far below” regular expansion readings, group says
The nation’s small-business optimism rose 1.4 points to 96.6 in May, the highest index reading since September 2007. That’s according to the National Federation of Independent Business’ (NFIB’s) latest index of small-business optimism released June 10.
Even though May represents the third straight month with increased optimism, the index is still “far below” readings that have normally accompanied an expansion.
Similar gains in the past haven’t “panned out” in this recovery period, the NFIB said. Five index components improved, one was unchanged, and four fell, although “not by much.”
The four components most closely related to gross-domestic product (GDP) and employment growth collectively fell 1 point in May, William (Bill) Dunkelberg, chief economist at the NFIB, said in the news release.
The components include job openings, job-creation plans, inventory, and capital-spending plans.
It means that “soft” components, such as expectations about sales and business conditions drove the entire gain, Dunkelberg said.
“With prices being raised more frequently in response to rising labor and higher energy costs, it is clear that small businesses are unwilling to invest in an uncertain future. As long as this is the case, the economy will continue to be ‘bifurcated,’ with the small business sector not pulling its historical weight in the GDP numbers.”
The Merriam-Webster online dictionary defines bifurcate as “to cause to divide into two branches or parts.”
The NFIB’s news release also provided analysis on the index readings for the components involved, including labor markets, sales, and earnings and wages.
Labor markets
NFIB owners increased employment by an average of 0.11 workers per firm in May, a figure that is seasonally adjusted.
It represents the eighth positive month in a row and the best string of gains since 2006, according to the NFIB.
Seasonally adjusted, 11 percent of the owners (a figure that is down 2 points) reported adding an average of three workers per firm over the past few months.
The remaining 77 percent of owners made no net change in employment.
About 55 percent of the owners hired or tried to hire in the last three months and 46 percent reported few or no qualified applicants for open positions.
GDP declined in the first quarter, but it didn’t result in reduced labor demand, the NFIB said.
Nearly one quarter (24 percent) of all owners reported job openings they could not fill in the current period, which is unchanged and provided some “downward pressure” on the unemployment rate.
Another 14 percent reported using temporary workers, unchanged for several months.
Job-creation plans continued to “strengthen” and rose 2 percentage points to a seasonally adjusted net 10 percent, approaching “normal” levels for a growing economy, even with no growth last quarter, the NFIB said.
Sales
The net percentage of all owners (seasonally adjusted) reporting higher nominal sales in the past three months, compared to the prior three months, improved 1 point to a net negative 1 percent, “far better” than the negative 34 percent readings in 2009.
It represents the best seasonally adjusted reading since early 2012 when the economy temporarily reached a more normal growth path.
About 12 percent cite weak sales as their top business problem, the best reading since December 2007, the peak of the expansion.
Expected real-sales volumes posted a 5 point increase, rising to a net 15 percent of owners, the best reading since mid-2007.
Expectations for improved sales volumes have “strengthened substantially,” but this has not translated into strong demand for inventories or employees, the NFIB noted.
Earnings and wages
Earnings trends improved three points to a net negative 17 percent.
Rising labor costs are keeping “pressure” on earnings, but the NFIB is noticing, what appears to be, “steady improvement” in profit trends.
It represents one of the best readings since mid-2007 with the exception of a few months in early 2012 when the economy made an attempt to pick up the pace of economic growth.
Three percent of respondents reported reduced worker compensation and 24 percent reported raising pay, yielding a seasonally adjusted net 20 percent reporting higher worker compensation, unchanged and among the best readings since 2008.
A net seasonally adjusted 15 percent plan to raise compensation in the coming months, which is up 1 point, and represents the “strongest” reading since 2008.
The reported gains in pay are now solidly in the range typical of an economy with solid growth, the NFIB noted.
Although GDP growth in the first quarter was negative, the small-business sector continues to show signs of progress, “small as they may be,” the NFIB added.
Contact Reinhardt at ereinhardt@cnybj.com