I have been waiting with some angst for the November NFIB survey of small business owners. The results were released this morning. Overall, these entrepreneurs are not optimistic about the near future, as indicated by the Index of Small Business Optimism which recorded the fourth lowest reading in the 35-year history of the survey.
So what do the specific items tell us?
While this is a significant recession, at this point it does not appear to be as bad as the two other major downturns of the past half century.
Employment
The reduction in work forces in these small businesses seems to have taken a pause. The decline in average employment per firm dropped slightly in November, but was not nearly as bad as September and October. 43% of those surveyed hired or tried to hire. This seems remarkably high when compared to the corporate sector, where the news is about hiring freezes and layoffs. Interestingly, even with the increase in overall unemployment in the US, finding the right people is still a problem. 72% of those trying to hire reported few or no qualified applicants for the job openings they were trying to fill.
The outlook for employment in small business suggests that we have not hit bottom in this recession. Over the next three months, only 6% plan to create new jobs, and 17% plan workforce reductions. This yields a seasonally adjusted net-negative 4% of owners planning to create new jobs, one of the lowest readings in survey history.
While this is not good news, these findings are not as low as occurred in the 1974-75 or the 1980-82 recession periods.
Capital Spending
The frequency of reported capital outlays over the past six months rose two points to 56% of all firms, still at recession levels, but still not as bad as we saw in the 1974-1975 downturn. These entrepreneurs are spending a little more on new equipment and new fixtures and furniture. They are spending a little less on new automobiles.
Overall, spending is weak, but the frequency of outlays has improved for the last two months and there is a slight increase in planned capital spending over the next few months.
Inventories and Sales
Small business owners continued to reduce inventory levels to adjust to slower sales.
Earnings
The net percent of owners reporting higher profits deteriorated further in November. Seasonally adjusted, those reporting declining earnings trends outnumbered those with gains by 38% percentage points
Profitability is the second worst showing in 35 years of survey history.
Inflation
Nothing tends to kill inflation like a recession. Price pressures vanished in November. However, many of the structural causes of inflation are still present, so we need to keep an eye on inflation as the economy rebounds.
Credit
As the economy weakens, loan demand from small business owners continues to decline.
My Take
While this is a bad recession, for entrepreneurs there is no indication that it is any worse than the last two deep recessions over the past fifty years. We survived these tough times and will survive this one.
Small business owners are approaching these tough times with a prudent hand:
· They are focusing on cash.
· They are reducing debt.
· They are tightening inventory.
· They are being cautious about their overhead expenses.
While business failure will increase, the entrepreneurial spirit is still alive and well. Our entrepreneurial core should keep us from falling into a deeper recession. New venture formation will help lead us to the recovery that we can expect by early 2010.