WASHINGTON (MNI) – The following is the text of the National
Federal of Independent Business summary of its Small Business Optimism
index, published Tuesday:

The National Federation of Independent Business Index of Small
Business Optimism lost 1.2 points in March, falling to 86.8. The
persistence of index readings below 90 is unprecedented in survey
history.

“The March reading is very low and headed in the wrong direction,”
said Bill Dunkelberg, NFIB chief economist. “Something isn’t sitting
well with small business owners. Poor sales and uncertainty continue to
overwhelm any other good news about the economy.”

The index has posted 18 consecutive monthly readings below 90. In
March, nine of the 10 Index components fell or were unchanged from
February’s not-so-great readings.

Optimism Components Net % Change

PLAN TO INCREASE EMPLOYMENT -2% -1
PLAN TO INCREASE CAP. OUTLAYS* 19% -1
PLAN TO INCREASE INVENTORIES -7% 0
EXPECT ECONOMY TO IMPROVE -8% 1
EXPECT HIGHER REAL SALES -3% -3
CURRENT INVENTORY SATISFACTION -1% 0
CURRENT JOB OPENINGS* 9% -2
EXPECTED CREDIT CONDITIONS -16% -2
NOW A GOOD TIME TO EXPAND* 2% -2
EARNINGS TRENDS -43% -4

* 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.

Employment

After a devastating period of employment reductions, employment
change per firm hit the “zero line” in March. Since July 2008,
employment per firm fell steadily each quarter, logging the largest
reductions in survey history (35 years). The February reduction of just
0.1 per firm indicated a substantial slowdown in the bleeding, and the
March reading of 0.0 confirms that workforce reductions have ended.

“This sets the stage for job creation — if owners become
optimistic enough to think new hires can generate enough additional
business to pay their way,” said Dunkelberg.

While actual job reductions may have halted, plans to create new
jobs remain weak. Over the next three months, 7 percent plan to reduce
employment (down one point), and 15 percent plan to create new jobs (up
two points), yielding a seasonally adjusted net negative 2 percent of
owners planning to create new jobs, weaker than February and still more
firms planning to cut jobs than planning to add. Only nine percent
(seasonally adjusted) reported unfilled job openings, down two points
and historically low, showing little hope for a lower unemployment rate.

Capital Spending

The frequency of reported capital outlays over the past six months
fell two points to 45 percent of all firms, one point above the 35-year
record low reached most recently in December 2009. Of those making
expenditures, 30 percent reported spending on new equipment (down one
point from February), 16 percent acquired vehicles (down three points),
and 8 percent improved or expanded facilities (down two points). Four
percent acquired new buildings or land for expansion (unchanged), and 9
percent spent money for new fixtures and furniture (up one point).
Plans to make capital expenditures over the next few months fell one
point to 19 percent, three points above the 35-year record low.

Two percent characterized the current period as a good time to
expand facilities, down two points from February. A net negative 8
percent expect business conditions to improve over the next six months,
up a point from February, but 9 points below January and a very
pessimistic reading.

“With all the good news about the economy and GDP growth, it is not
immediately obvious why owners remain so pessimistic and unwilling to
commit to new spending,” said Dunkelberg.

Sales and Inventories

The net percent of all owners (seasonally adjusted) reporting
higher nominal sales in the past three months improved 1 point to a net
negative 25 percent. Widespread price cutting continued to contribute to
reports of lower nominal sales. The net percent of owners expecting real
sales gains lost three points, falling to a net negative 3 percent of
all owners, seasonally adjusted.

Small business owners continued to liquidate inventories and weak
sales trends gave little reason to order new stock. A net negative 18
percent of all owners reported gains in inventories (more firms cut
stocks than added to them, seasonally adjusted), 10 points better than
December’s record reading but unchanged from February.

For all firms, a net negative 1 percent (unchanged) reported stocks
too low, so it appears that stocks are considered to be roughly in
balance relative to expected real sales volumes. Plans to add to
inventories were unchanged at a negative 7 percent of all firms
(seasonally adjusted) — still more owners planning to reduce stocks
than planning new orders. Only a pick-up in sales will turn this around.
Seasonally unadjusted, 13 percent plan to add to stocks while 15 percent
will reduce them.

Inflation

The weak economy continued to put downward pressure on prices.
Eleven percent of the owners reported raising average selling prices,
but 29 percent reported average price reductions. On the cost side, 5
percent of owners cited inflation as their number one problem (e.g.,
costs coming in the back door of the business), so materials costs are
not pressuring owners too badly.

“The Fed is right, the likelihood of inflation breaking out in the
near term is low,” said Dunkelberg.

Earnings

In March, earnings trends declined with a net negative 43 percent
of owners reporting positive profit trends. The persistence of this
imbalance is bad news for the small business community. Profits are
important for the support of capital spending. Not seasonally adjusted,
9 percent reported profits higher (down 3 points), but 58 percent
reported profits falling (up three points).

“Don’t expect much spending or hiring until these trends reverse,”
Dunkelberg said.

Credit

Regular NFIB borrowers (35 percent accessing capital markets at
least once a quarter) continued to report difficulties in arranging
credit. A net 15 percent reported loans harder to get than in their last
attempt, up three points from February. However, 89 percent of the
owners reported all their credit needs met or they did not want to
borrow.

Historically weak plans to make capital expenditures, to add to
inventory and expand operations also make it clear that many borrowers
are simply on the sidelines, waiting for a good reason to make capital
outlays and order inventory that requires businesses to take out the
usual loans used to support these activities.

“What small businesses need most are increased sales, giving them a
reason to hire and make capital expenditures and borrow to support those
activities,” said Dunkelberg.

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

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