Despite the NBER’s claims that the recession has ended small businesses are still mired in a very difficult operating environment. Today’s NFIB Small Business Survey shows the continuing struggles for the most important driver of the US labor market.
“The downturn may be officially over, but small business owners have for the most part seen no evidence of it,” said NFIB Chief Economist Bill Dunkelberg.
The single largest worry for small businesses remains sales. This whole recession remains a problem of end demand. Sales fell off a cliff, corporations laid off employees to protect the bottom line and since sales haven’t rebound neither has employment. Sales remain very weak at best:
Sales and Inventories
The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months lost a point, falling to a net-negative 17 percent, 17 points better than June 2009 (the recession bottom) but still indicative of very weak customer activity. Unadjusted, 23 percent of all owners reported higher sales (last three months compared to prior three months, down two points) while 34 percent reported lower sales (up one point). Widespread price cutting continued to contribute to reports of lower nominal sales.
The net percent of owners expecting higher real sales lost three points from August, falling to a net-negative 3 percent of all owners (seasonally adjusted) – a dismal outlook . Not seasonally adjusted, 26 percent expect improvement over the next three months, 37 percent expect declines.
Small business owners continued to liquidate inventories and weak sales trends gave little reason to order new stock. A net-negative 14 percent of all owners reported gains in inventories (more firms cut stocks than added to them, seasonally adjusted), one point better than August but still very weak. Inventories had been built in the expansion to satisfy the spending of a consumer that was saving virtually nothing. In June 2007, the picture changed with more firms reducing inventory stocks than adding to them. The sudden reduction in spending and increase in saving triggered an extended period of inventory reduction that has not yet run it course. September is the 30th negative double digit month in a row and the 40th negative month in a row for inventory reductions. Unadjusted, 11 percent reported gains in inventory stocks (up one point), but 24 percent reported inventory reductions (unchanged).
As mentioned above, employment remains very weak and hiring plans have actually declined in recent months:
Average employment growth per firm was negative 0.26, and has been negative in all but two months since January 2008. Eleven percent (seasonally adjusted) reported unfilled job openings, unchanged from August and historically very weak. Over the next three months, 8 percent plan to increase employment (unchanged), and 16 percent plan to reduce their workforce (up three points), yielding a seasonally adjusted net-negative 3 percent of owners planning to create new jobs, down four points from August, an unexpected reversal in job creation prospects.
Despite recent worries about inflation small businesses aren’t seeing it. The weaker than expected recovery has continued to put downward pressure on prices:
The weak economy continued to put downward pressure on prices. Twelve percent of the owners (down 2 points) reported raising average selling prices, and 24 percent reported average price reductions (up 1 point). Seasonally adjusted, the net percent of owners raising prices was a negative 11 percent, a 3 point decline. September is the 22nd consecutive month in which more owners reported cutting average selling prices that raising them. Widespread price cutting contributes to the high percentage reporting declining sales revenues.
The small business community probably paints the most accurate picture of what exactly is occurring in the US economy right now.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.