Small businesses more optimistic in April, NFIB survey finds

April’s Small Business Optimism Index rose 1.8 points to a post-recession high of 95.2, the National Federation of Independent Business (NFIB) reported on May 13.

April’s index crossed the 95 mark for the first time since 2007, as seven components improved, two fell, and one was unchanged.

Even though the 95 mark indicates “progress in optimism,” the index is still five points below the average reading from 1973 to 2008 and far from what are considered “expansion levels,” William (Bill) Dunkelberg, NFIB chief economist, said in a news release.

He sees it as a “high end recession reading.”

“Small-business confidence rising is always a good thing, but it’s tough to be excited by meager growth in an otherwise tepid economy. Washington remains in a state of policy paralysis. From the small-business perspective, there continues to be no progress on their top problems: cost of health insurance, uncertainty about economic conditions, energy costs, uncertainty about government actions, unreasonable regulation and red tape, and the tax code. So while the improvement is welcome, as long as small-business owners continue to have negative views about the future, the 95 number may fade,” Dunkelberg said.

NFIB New York director’s comments
Despite the rise in optimism, Michael Durant, director of NFIB New York in Albany, shares Dunkelberg’s concern that government leaders aren’t “positively” addressing the issues plaguing small businesses.

“I think, with the slight ebb and flow of the economy, their present situation may make them feel a little bit better about things, but if the issues are not going to be 

addressed, or are negatively going to be addressed, then these moments of uptick are going to be fleeting,” Durant contends.

Small-business owners in New York continue expressing concern about health-care coverage and high taxes, Durant says.

He credits state lawmakers for enacting a state budget that included Gov. Cuomo’s tax-relief plan that cut taxes for manufacturers, but Durant contends small businesses “were excluded from that reform because it did not address the personal income tax.” 

He believes it arms small-business owners with a question for candidates running for state office this fall. 

“I think the rhetorical question back to their elected officials is going to be why didn’t you cut [my taxes],” Durant says.

He maintains that New York lawmakers need a “comprehensive and sustained” approach to address regulatory reform and taxes.

Index components
The index components that improved included plans to increase employment and current job openings. The components that focus on sales expectations and current inventories were lower in the April index, the NFIB said.

NFIB owners increased employment by an average of 0.07 workers per firm in April. The figure is seasonally adjusted and weaker than March, but represents the seventh positive month in a row and the best string of gains since 2006, according to the NFIB.

The remaining 74 percent of owners made no net change in employment. The index found 51 percent of the owners hired or tried to hire in the last three months, while 41 percent reported few or no qualified applicants for open positions. 

The nation’s gross domestic product, or GDP, didn’t grow in the first quarter, so firms didn’t need a lot of new workers, the Federation said. 

The economy “thawed” in April, the NFIB said, making the month look “a bit better.” Weather conditions were “bad” in the first quarter, but the NFIB isn’t blaming weakness in employment and GDP growth “entirely” on the weather since the U.S. wasn’t “uniformly frozen.” 

The survey also found 24 percent of all owners reported job openings they couldn’t fill in the current period, which is up 2 points, the NFIB said. 

The slight rise suggests that unemployment will ease a tenth of a point or more. Another 14 percent reported using temporary workers, up 1 point from March. 

Job-creation plans reversed a recent negative trend and rose 3 percentage points to a seasonally adjusted net 8 percent, according to the NFIB. 

The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past 3 months, compared to the prior 3 months, improved 4 points to a net negative 2 percent. 

The figure, which is seasonally adjusted, is seen as “far better” than the negative 31 percent readings in 2009, the NFIB said.

It also represents the best seasonally adjusted reading since early 2012 when the economy temporarily reached a more normal growth path.

Expected real-sales volumes posted a 2-point decline after a strong 9-point gain in March, falling to a net 10 percent of owners. 

The figure fell “a bit,” but it is still the third highest reading since early 2012, the NFIB said.

The index found 15 percent of owners cite weak sales as their top business problem, which is high but approaching levels experienced in “normal” times. 

Earnings trends improved 4 points to a net negative 20 percent (net percent reporting quarter-to-quarter earnings trending higher or lower), which represents the best reading since 2007. 

Not seasonally adjusted, 15 percent reported profits higher quarter to quarter (up 3 points), and 41 percent reported profits falling (down 1 point). 

Rising labor costs are keeping pressure on earnings, however, with a seasonally adjusted net 20 percent of small-business owners reporting higher compensation costs. 

A net seasonally adjusted 14 percent plan to raise compensation in the coming months, unchanged from February and March. 

The reported gains in compensation are now solidly in the range typical of an economy with solid growth. Although GDP growth in Q1 was less than expected (about zero), the small-business sector “continues to show signs of progress, small as they may be,” the NFIB said.       

Contact Reinhardt at ereinhardt@cnybj.com