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Economic Woes Hit Main
Street Business Owners
October’s churning economic activity clearly worried small business
owners. The National Federation of Independent Business Index of
Small Business Optimism fell 5.4 points to 87.5 (1986=100), the
third lowest reading in the 35-year history of the survey.
“The decline in the index is a clear indication that the economy is
solidly lodged in a recessionary mire,” said NFIB Chief Economist
William Dunkelberg. “The third-quarter decline in Gross Domestic
Product was not large, 0.3% at an annual rate, but consumer spending
– 70% of GDP – was down more than 3%. The consumer does not appear
ready to get into a holiday mood to save the fourth quarter
numbers,” the economist said.
Seasonally adjusted, average employment per firm declined by 0.41
workers in October, a reading worse than September’s. Nine percent
of the owners increased employment by an average of 2.7 workers per
firm, but 17% reduced employment an average of 2.7 workers per firm,
Forty-six percent of the owners hired or tried to hire (down three
points), and 76% of those trying to hire reported few or no
qualified applicants for the job openings they were trying to
fill. Eight percent of the owners reported that the availability of
qualified labor was their top business problem, down from 17% in
September 2007. Fourteen percent (seasonally adjusted) reported
unfilled job openings, down four points from September (the 34-year
average is 22%), anticipating another up-tick in the unemployment
Over the next three months, 9% plan to create new jobs (down three
points), and 15% plan workforce reductions (up five points),
yielding a seasonally adjusted net-zero percent of owners planning
to create new jobs, seven points lower than September and one of the
lowest readings in survey history. Only the 1974-75 and 1980-82
recession periods produced lower readings.
“While Fed policy may be keeping financing costs low, the weak
economy has reduced the need for expansion and new equipment putting
pressure on cash flows and inducing owners to postpone
discretionary capital outlays,” said Dunkelberg. “The frequency of
reported capital outlays over the past six months rose two
points to 54% of all firms, still at recession levels historically,
but at least it didn’t fall.”
Thirty-six percent reported spending on new equipment (unchanged),
20% acquired vehicles (up three points), and 13% improved or
expanded their facilities (up one point). Twelve percent spent money
for new fixtures and furniture (up 1 point); 5% acquired new
buildings or land for expansion (down two points).
Plans to make capital expenditures over the next six months
fell two points to 19%. This reading was last this low in 1975 and
only lower at 16% in 1974. “Clearly in this uncertain environment,
owners are postponing any capital projects that are not essential to
the operation of the firm,” Dunkelberg said.
Five percent characterized the current period as a good time to
expand facilities, down six points – the lowest reading since 1982,
and the second lowest in survey history. A net-negative 4% expect
business conditions to improve over the next six months, an 18 point
decline from September, but far from a record-low level.
Inventories and Sales
Small business owners continued to liquidate inventories. A
net-negative 13% of owners reported gains in inventory stocks (more
firms cut stocks than added to them, seasonally adjusted), the
seventh negative double-digit month and the seventeenth negative
month in a row. Unadjusted, 11% reported gains, and 23% reported
all firms, a net-negative 4% (three points worse than September)
reported stocks too low, seasonally adjusted. The net percent of all
owners, seasonally adjusted, reporting higher sales in the past
three months lost 10 points, falling to a net-negative 21%, the
worst reading in survey history. Unadjusted, 20% of all owners
reported higher sales (down six points), and 37% reported lower
sales (up six points).
Owners are still satisfying customer demand out of current
inventories and plans to replace stocks are weak.
Expectations for gains in real sales also declined, falling 14
points to a net-negative 16% who expect improvements (the second
worst reading in survey history). Weak demand was the single most
important business problem in September, taxes was second, and
inflation and cost and availability of insurance tied for third.
Poor sales expectations produced a decline in plans to add to
inventories with the net percent planning to add to stocks falling
two points to a net-negative 5% of all firms, seasonally adjusted.
Seasonally unadjusted, 10% plan to add to stocks (unchanged), while
20% will reduce stocks (up four points). “This is very bad news for
manufacturer’s order books.” Dunkelberg said.
Price pressures continue to abate with sales trends now at recession
net percent of owners reporting higher average selling prices
dropped five points to a net 15% in October, seasonally adjusted,
down 17 points since July. “The bad news is that this is still a
high reading, inflation, especially core inflation, is not going
away quietly,” Dunkelberg said.
Unadjusted, 29% reported raising average selling prices, down five
points, and 17% reported lower selling prices, up two points from
September. The percent of owners citing inflation as their No.1
problem fell five points to 11%, about half its level a few months
Plans to raise prices fell six points to a net, seasonally-adjusted
18% of owners, 20 points below the July reading, signaling good news
for the Fed.
net percent of owners reporting earnings gains was unchanged in
October and at a dismal level. Seasonally adjusted, those reporting
declining earnings trends outnumbered those with gains by 35
percentage points. With a decline in the percent of firms raising
selling prices, it has become harder to pass on the pressures from
“backdoor inflation,” one of the top-rated business problems.
The percent of all firms reporting higher employee compensation fell
two points to 15% of all firms, but this was not enough to support
the owners reporting higher earnings (13%, down four points), 54%
cited stronger sales (up one point) as the cause, and 8% each
credited lower materials costs and higher selling prices. For those
reporting lower earnings compared to the previous three months (41%,
down four points), 59% cited weaker sales (up 18 points), 27% cited
higher materials costs (including energy), and 10% blamed lower
selling prices. Two percent each cited higher insurance costs,
higher labor costs or higher taxes for the adverse performance of
the economy weakens, loan demand continues to be soft. Only
33% reported regular borrowing, a point higher than September, but
historically low (the 35-year low is 31%). Because of the slowdown
in the economy, the credit worthiness of potential borrowers has
deteriorated over the last year, leading to more difficult terms and
higher loan rejection rates (even with no change in lending
standards) for some owners.
Thirty-one percent reported all their borrowing needs met compared
to 6% who reported problems obtaining desired financing. The net
percent reporting borrowing needs satisfied was down two points from
September. The net percent of owners reporting loans harder to get
fell two points to 9% of all firms from its cyclical high of 11%
reached in September.
net percent of owners expecting credit conditions to ease in the
coming months was a seasonally adjusted net-negative 16% (more
owners expect that it will be harder to arrange financing), three
points worse than September (the average was a net-negative 8% in
2007). Owners expect deteriorating economic conditions to make
borrowing more difficult.
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Eight Ideas To Improve
Your Productivity & Effectiveness
to the point with the telephone caller by saying, “Hi Susan, nice to
hear from you. How can I help you?”
conversation to a minimum — walk your colleague out to your office
door, saying, “Thanks for the info, Jim. Catch you later.” Take a
short turn and return to your desk.
advantage of voice-mail by leaving a message after hours when
colleagues are not apt to be there, and avoid a two-way
your reply on the bottom of a memo and pass it right back to the
most critical files right at hand in a vertical file on your desk,
at the front of your desk-file drawer, or in a mobile file cart at
daily “To Do” list out of yellow stickies placed on a clipboard.
Toss away the stickie as you complete each task, ending the day with
an empty clipboard.
Use the 10
minutes, waiting for a meeting to start, to jot a short note or read
a journal article. You’ll be surprised at how many pesky tasks you
can clear away in 5 or 10 minutes!
spontaneous meeting arises try to meet in a colleague’s office, not
your own. It’s a lot easier to excuse yourself from someone else’s
office, when the meeting has outlived its usefulness, than to ask
them to leave your office.