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Small business job growth, expansion plans suffering at hands of slowed sales

Small business optimism levels are down, and the NFIB reports that slow sales are holding back job growth and expansion plans, implying that the remainder of the year spells more suffering for small businesses.

frustration of small businesses

frustration of small businesses

Small business optimism continues to fall

According to the National Federation of Independent Businesses (NFIB), the September Small Business Optimism Index lost 0.1 points, falling to a recession-level reading, which the Federation says was pulled down by “a deterioration in labor market indicators,” as job creation plans fell dramatically for the month by 6.0 points, while job openings fell 1.0 points, and more businesses reported decreases in employment than did increases. Since the commencement of NFIB’s monthly surveys in 1986, the Index has been below 93.0 a total of 56 times; 32 of which have occurred since the recovery began in June 2009. Some readings did improve slightly, but the Federation notes that all are well below historic averages.

small business pessimism

“The election is just weeks away and essentially a horse-race, and its outcomes would have vastly divergent policy implications,” said NFIB chief economist Dr. William Dunkelberg. “Everyone is waiting to see what happens, especially small-business owners who have a lot at stake in the outcome—which could mean higher marginal tax rates and more deficits, OR lower marginal tax rates and less government. Small-business owners are reporting that the political climate is a reason not to expand—second only to the economy, which is only keeping up with population growth. And so, in the meantime, owners are in maintenance mode; spending only where necessary and not hiring, expanding or ordering more inventories until the future becomes more ‘certain.’”

Sales, the albatross around small business’ neck

Referring to sales as the albatross for the small business community, the NFIB reports that the net percent of all owners reporting higher nominal sales over the past three months was unchanged at a negative 13 percent, cementing the 17 point decline since April and affirming weak GDP growth for the second quarter.

Weak sales are cited as the top business problem for one in five small businesses, and combined with a tight credit environment, there is a difficulty in finding ways to be optimistic for most small businesses.

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The NFIB reports that consumer spending remains weak and high energy costs continue to “tax” consumer disposable income. The net percent of owners expecting higher real sales was unchanged at one percent of all owners, down 11.0 points from the year high of net 12.0 percent in February. The weak reading is unlikely to trigger orders for new inventory or business expansion. Fully 31.0 percent of small businesses expect continued declines over the next 90 days.

A tough scene for job creators

Job creation plans showed that small business owners created fewer jobs in September than in the two previous months, and while 10.0 percent plan to increase employment, 11.0 percent are planning reductions, effectively cancelling out any theoretical gains.

The net percent of owners planning to create new jobs fell 6.0 points to 4.0 percent, which the NFIB says is a historically weak reading, especially in what is being called a recovery. Essentially, hiring is keeping up with population growth, but not exceeding it, as 10.0 percent of small business owners report adding 2.2 workers in recent months, while 13.0 percent reduced their staff size by an average of 3.0 workers.

Adding to their lagging optimism levels, 80 percent of small businesses hiring report that there were few or no qualified applicants for open positions.

The bright spot for the nation is the West North Central states which saw positive job growth, largely because of energy production, the NFIB reports.

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Spending is frozen, now in maintenance mode

Small business owners are now in “maintenance mode,” the Federation reports, with the frequency of reported capital outlays over the past six months falling 4.0 points to 51.0 percent, and of those actually spending, 34.0 percent reported spending on new equipment (down 7.0 points from August), 16.0 percent acquired vehicles (down 5.0 points), 14.0 percent improved or expanded facilities (unchanged), 4.0 percent of acquired new buildings or land for expansion (down 2.0 points) and 12.0 percent spent money for new fixtures and furniture (unchanged).

Overall, there was a substantial reduction in capital spending activity. The percent of owners planning capital outlays in the next three to six months fell 3.0 points to 21.0 percent. While the number of owners who characterized the current period as a good time to expand facilities went up 3.0 points to 7.0 percent, the NFIB notes that this is only half of the 14 percent of owners who said the same in September 2007.

Full NFIB Report:

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Written By

Marti Trewe reports on business and technology news, chasing his passion for helping entrepreneurs and small businesses to stay well informed in the fast paced 140-character world. Marti rarely sleeps and thrives on reader news tips, especially about startups and big moves in leadership.

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