Small Business Confidence Rises in April

Old-fashioned Main Street
Old-fashioned Main Street

The National Federation of Independent Business (NFIB) this morning reported an increase of 2.6 points in its small business optimism index, up from 89.5 in March to 92.1 in April. The NFIB noted that the index has averaged 90.7 since the U.S. economic recovery began in July 2009, which puts the April index reading below the mean for this period.

The NFIB's chief economist said:

The sub-par recovery persists for the small business sector. Economic performance is contradictory - corporate profits are at record levels and the stock market hits new highs, yet GDP growth for the past six months has averaged about 1.5 percent and the unemployment rate is 7.5 percent. Nothing in the NFIB data suggests that the small business half of the economy is expanding other than by an amount driven by population growth and associated new business starts now in excess of terminations. The lack of leadership in Washington and the resulting uncertainty depresses consumers' and business owners' willingness to spend and invest, and make bets on the future.

More than 60% of business owners surveyed expect business conditions for the next six months to remain as they are or get worse. That represents an improvement of 13% over the March reading.

There was a bit of good news. For the fifth consecutive month, job growth was positive, even if by a very small amount. Earnings and wages remained unchanged, with 19% of owners reporting that employee compensation rose in April.

On a seasonally adjusted basis, 3% of business owners were able to raise prices, up from a net negative 1% in March. Over the next few months 21% of owners expect to raise their prices, also up from a March reading of 17%.

The biggest drags on independent businesses, according to the survey, were taxes (noted by 23% of respondents), regulations and red tape (21%) and poor sales (16%).

Nearly half of business owners either hired or tried to hire new employees in the past three months. More than three-quarters of the firms looking for employees reported few or no qualified applicants for the open positions, according to the NFIB.

The traditional answer to that problem is to increase wages, but that is not happening. Our guess is that small businesses are not hiring because they are not making sales. And they are not making sales because so many Americans are unemployed. It's a nasty, if not vicious, circle.

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