WASHINGTON (MNI) – The following is the text of the National
Federation of Independent Business’ monthly Small Business Optimism
index published Tuesday:

Rising just one tenth of one percent in January, the Small-Business
Optimism Index settled at 93.9, a slight increase from the December 2011
reading, according to the National Federation of Independent Business
(NFIB). While the increase marks five consecutive months of improvement,
the readings from January and February 2011 were higher, indicated no
net gain for the calendar year. Historically, optimism remains at
recession levels. While owners appeared less pessimistic about the
outlook for business conditions and real sales growth, that optimism did
not materialize in hiring or increased inventories plans.

“The most positive statement that can be made about January’s
reading is that the Index did not go down; a change of 0.1 points is
essentially no change and it is hardly indicative of a surge in economic
activity,” said NFIB Chief Economist Bill Dunkelberg. “Nothing happened
last month that would significantly improve the small-business outlook;
Washington is at a stalemate. The Index remains below its level a year
ago of 94.1 which means that no progress was made in 2011. Congress has
failed to pass a budget for over 1,000 days, and without discipline on
spending or any budgetary priorities, there is no path to fiscal sanity
in Washington. U.S. debt is now larger than our GDP, and headed in the
wrong direction. This does not make for a comforting future, a fact
reflected by low consumer and small-business owner optimism.”

A retrospective upon the last 12 months of the Index suggests that
for small-business owners, 2011 was a “flat” year. While the Index is
edging in a positive direction, January 2012’s survey indicates that the
economy will continue to crawl along at a slow and weak pace.

Optimism Components Net % Change

PLAN TO INCREASE EMPLOYMENT 5 -1

PLAN TO INCREASE CAP. OUTLAYS* 24 0

PLAN TO INCREASE INVENTORIES -3 -5

EXPECT ECONOMY TO IMPROVE -3 +5

EXPECT HIGHER REAL SALES 10 +1

CURRENT INVENTORY
SATISFACTION 1 +1

CURRENT JOB OPENINGS* 18 +3

EXPECTED CREDIT CONDITIONS -9 0

NOW A GOOD TIME TO EXPAND* 9 0

EARNINGS TRENDS -24 -2

* Note: These components are measured as actual percentages of all
respondents and are not net percentages. A net percentage is the percent
positive minus percent negative.

Some other highlights of January’s Optimism Index include:

– NFIB reports of job growth improved (0.15) from December, but
only to net zero (0) new workers per firm. The Bureau of Labor
Statistics (BLS) report issued on February 3rd showed relatively strong
job creation for January; NFIB’s data suggest that there will be some
downward revision in BLS numbers, especially in light of the adjustments
in the Household Survey that suggested a huge number of adults left the
labor force. Seasonally adjusted, 11 percent of owners added an average
of three workers per firm over the past few months, while 11 percent
reduced employment an average of 2.9 workers per firm. The remaining 78
percent of owners made no net change in employment. Owners reporting
reductions in employment remained relatively low, suggesting that firms
are through cyclically adjusting their employment. Reports of workforce
reductions are at their lowest level since October 2007. Forty-one
percent of owners hired or tried to hire in the past three months, but
31 percent reported few or no qualified applicants for the position(s).
The increase in the percent of owners with hard to fill job openings
indicates that job markets are tightening somewhere, and correctly
anticipated a decline in the unemployment rate.

– The frequency of firms that reported making capital expenditures
over the past six months lost one point, declining to 55 percent, but
still retaining the solid gain posted in December. The record low of 44
percent was reached most recently in August 2010. Of those making
expenditures, 38 percent reported spending on new equipment (down 4
points), 20 percent acquired vehicles (unchanged), and 13 percent
improved or expanded facilities (unchanged). Six percent acquired new
buildings or land for expansion (up 1 point) and 11 percent spent money
for new fixtures and furniture (down 2 points). While the spending
picture has improved, it still falls short of “normal”. The percent of
owners planning capital outlays in the next three to six months held at
24 percent; this is the highest reading in years, but still 10 points
lower than those typically seen in an expanding economy.

– The net percent of owners expecting better business conditions in
six months was a negative 3 percent, 5 points better than December but
still 13 percentage points below last year’s reading. Not seasonally
adjusted, 18 percent expect deterioration (down 4 points), and 22
percent expect improvement (up 7 points). A net 10 percent of all owners
expect improved real sales volumes, up 1 point and the strongest reading
since the beginning of the year. Twenty-two percent report “poor sales”
as their top business problem, down 1 point, but still the top business
problem reported.

– Increasing 3 points over December, a net negative 7 percent of
all owners (seasonally adjusted) reported growth in their inventories.
January marks 56 consecutive months during which reported inventory
reductions have outnumbered reported increases. Unadjusted, 11 percent
reported growth in inventory stocks (unchanged) and 22 percent reported
inventory reductions (up 1 point). More owners reported weaker sales
quarter on quarter than improvements, so demand can be met by reducing
inventories on hand. Overall, it appears that small-business owners have
reduced inventories to acceptable levels given the outlook for sales
growth. Without improved sales, there is little motivation to order new
inventory stocks. Plans to add to inventories dropped 5 points, arriving
at a disappointing net negative 3 percent of all firms (seasonally
adjusted). This drop is notable because December’s reading was the best
in 18 months.

– Eighteen percent of the NFIB owners reported raising their
average selling prices in the past three months (up 1 point), and 17
percent reported price reductions (down 1 point). Seasonally adjusted,
the net percent raising selling prices was -1 percent, down a point from
December. The frequency of price increases was highly concentrated in
the Wholesale (a net 14 percent raised prices) and Retail (net 4 percent
raised). Those cutting prices exceeded those raising prices by 14
percentage points in Construction and Agriculture, largely a result of
seasonal impact. Twenty-three (23) percent of owners plan to raise
average prices in the next few months, while 3 percent plan reductions.
Seasonally adjusted, a net 17 percent plan price hikes up 3 points. With
some evidence that spending has picked up, some of these price hikes
might stick.

** Market News International Washington Bureau: 202-371-2121 **

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