Small-business optimism rises, but job machine ‘still in reverse’

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An index of small-business optimism reached a 13-month high in October, but has a long way to go to return to some semblance of normalcy, according to a report Tuesday from the National Federation of Independent Business.

The group said its members overall continued to report weak sales and more plans to cut jobs, raising doubts about the strength of the economic recovery.

The NFIB asks members monthly about their sales, earnings, hiring and other issues. From those results the group calculates its optimism index.

The October survey of 2,059 small firms nationwide put the index at 89.1, up from 88.8 in September and the third straight increase. It’s also up sharply from the recession low of 81 reached in March.

But the index has dived from the 100 level three years ago.

And as the NFIB notes, in the terrible economy of 1980-82 (which saw back-to-back recessions) the index was below 90 in just one quarter. ‘In this recession, the index has been below 90 for six quarters, indicative of the severity of this downturn,’ the group said.

Some highlights from the October survey results:

--- A net 11% of small companies expect business conditions to improve over the next six months, up 3 points from September but historically low. ‘Consumer spending is weak, recent reports on consumer sentiment are discouraging, and there is nothing on the table in Washington to make owners more optimistic about the future, a recipe for depressed expectations and spending plans,’ the NFIB said.

--- Widespread price cutting continued to contribute to reports of lower sales.

--- Over the next three months 16% of firms plan to reduce employment, the same percentage as in September, and 9% plan to create new jobs (up 2 points). ‘The job-generating machine is still in reverse.’

--- For firms attempting to borrow, ‘Getting a loan continues to be difficult, with a net 14% reporting loans harder to get than in their last attempt. With very weak plans to make capital expenditures, add to inventory and expand operations, it would appear that many of those trying to borrow are having cash flow difficulties due to very weak sales (most frequently reported as the top business problem).’

--- The good news, such as it is: ‘Neither labor costs nor materials costs are seriously pressuring owners.’

-- Tom Petruno