(Jefferson City) – Fall arrived literally this month, as small-business optimism dropped from 93.9 to 91.6, largely due to a precipitous decline in hiring plans and expectations for future small-business conditions.
Of the 10 index components, seven turned negative, falling a total of 27 percentage points.
The study was done by the National Federation of Independent Business.
The stalemate in early October over funding the government as well as the failed “launch” of the Obamacare website left 68 percent of owners feeling that the current period is a bad time to expand; 37 percent of those owners identified the political climate in Washington as the culprit – a record high level.
NFIB Chief Economist Bill Dunkelberg said Washington paralysis is never good news for the economy, and it was no surprise that while politicians were arguing over whether or not the government should remain fully operational, small-business optimism measures deteriorated.
Job creation was up in October. NFIB owners increased employment by an average of 0.11 workers per firm in October after September’s decline. Twenty-one percent of all owners reported job openings they could not fill in the current period (up 1 point), and 15 percent reported using temporary workers, up 1 point from September. Most of the jobs “created” will likely be dominated by part-time workers as owners hedge their hiring while they try to fathom the health care law regulations and penalties.
Earnings trends did not improve in October, remaining at a negative 23 percent. Two percent of owners reported reduced worker compensation and 18 percent reported raising compensation, yielding a net 16 percent reporting higher worker compensation (down 1 point). A net 10 percent plan to raise compensation in the coming months, down 3 points. Overall, the compensation picture remained at the better end of experience in this recovery, but historically weak for periods of economic growth and recovery.
Credit continues to be a non-issue for small employers, 6 percent of whom say that all their credit needs were not met in October, unchanged from the previous month. Twenty-eight (28) percent of owners surveyed reported all credit needs met, and 53 percent explicitly said they did not want a loan.
Only 6 percent of owners characterized the current period as a good time to expand, which was down 2 points from September. The net percent of owners expecting better business conditions in six months was a net negative 17 percent, 7 points worse than September and 15 points worse than August.
The pace of inventory reduction continued in September, with a net negative 6 percent of all owners reporting growth in inventories, up 1 point from September. For all firms, a net negative 5 percent (a 5 point drop) reported stocks too low, the lowest reading since 2011.
Fourteen percent of the NFIB owners surveyed reported reducing their average selling prices in the past three months (unchanged), and 16 percent reported price increases (up 2 points). The net percent of owners raising average selling prices was 5 percent, up 4 points. As for prospective price increases, a net 18 percent plan price hikes, down 1 point. Twenty percent plan on raising average prices in the next few months (unchanged), and 3 percent plan reductions (up 1 point).
The Tuesday report is based on the responses of 1,940 randomly sampled small businesses in NFIB’s membership, surveyed throughout the month of October.