2010-09-25

Small Businesses confirm the economy still deleveraging and deflating

This is mainly a follow up on the previous posts:
Here are some quotes from the two last NFIB monthly small business surveys, starting from the August one, and going into September.

From the August 2010 NFIB report:
INVENTORIES AND SALES
The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months lost one point, falling to a net negative 16 percent, 18 points better than June 2009 but indicative of very weak customer activity. Widespread price cutting continued to contribute to reports of lower nominal sales. The net percent of owners expecting real sales gained a point over June, rising to a net negative four percent of all owners (seasonally adjusted), quite dismal. Small business owners continued to liquidate inventories and weak sales trends gave little reason to order new stock.

INFLATION
The weak economy continued to put downward pressure on prices. Twelve (12) percent of the owners (down one point) reported raising average selling prices, and 24 percent reported average price reductions (down three points). Seasonally adjusted, the net percent of owners raising prices was a negative 12 percent, a two point increase in the net percent raising prices. Plans to raise prices fell one point to a net seasonally adjusted 10 percent of owners. On the cost side, three percent of owners cited inflation as their number one problem (e.g. costs coming in the “back door” of the business) and only four percent cited the cost of labor.

PROFITS AND WAGES
Reports of positive profit trends worsened by a point in July, registering a net negative 33 percentage points, 29 points worse than the best expansion reading reached in 2005. The persistence of this imbalance is bad news for the small business community. Profits are important for the support of capital spending and expansion. Not seasonally adjusted, 18 percent
reported profits higher (up two points), but 45 percent reported profits falling (down two points). Owners continued hold the line on compensation, with eight percent reporting reduced worker compensation and 12 percent reporting gains. Seasonally adjusted, a net three percent reported raising worker compensation, only five points better than February’s record low reading of negative two percent. Labor costs are still under control, one of the major factors affecting inflation pressures. In past recovery periods, compensation improved at a much faster pace than we have experienced in this recovery period.

CREDIT MARKETS
Regular borrowing gained three points from last months record low to 32 percent accessing capital markets at least once a quarter. A net 13 percent reported loans harder to get than in their last attempt, unchanged from June. Overall, 91 percent of the owners reported all their credit needs met or they did not want to borrow, up one point. Credit may be harder to get compared to the bubble period (as it should be) and is always harder to arrange in a recession. But credit availability does not appear to be the cause of slow growth as many allege. Four percent of the owners reported “finance” as their top business problem, down two points. Pre-1983, as many as 37 percent cited financing and interest rates as their top problem. What businesses need are customers, giving them a reason to hire and make capital expenditures and borrow to support those activities.

Commentary
[…] What’s missing from the “debate” is logic. Policies should not violate common sense and logic, if they do, they are misleading and disguising a hidden agenda. Arguing that more government spending and taxes are needed to re-establish optimism, confidence and growth doesn’t meet the common sense test. Saving bankrupt companies to preserve union jobs doesn’t make sense either. The list of these “policy inconsistencies” is long.[…]

From the September 2010 NFIB report:
INFLATION
The weak economy continued to put downward pressure on prices. Seasonally adjusted, the netpercent of owners raising prices was a negative eight percent, a four point increase from July. August is the 21st consecutive month in which more owners reported cutting average selling prices that raising them. Widespread price cutting contributes to the high percentage reporting declining sales revenues. Plans to raise prices were unchanged at a netseasonally adjusted 10 percent of owners. On the cost side, three percent of owners cited inflation as their number one problem and only four percent cited the cost of labor, so neither labor costs or materials costs are pressuring owners to raise prices. With no pricing power and real sales volumes weak, profits are not able to recover.

PROFITS AND WAGES
Reports of positive profit trends improved three points in August, registering a net negative 30 percentage points, 26 points worse than the best expansion reading reached in 2005. The persistence of this imbalance is bad news for the small business community. Profits are important for the support of capital spending and expansion. Not seasonally adjusted, 18 percent reported profits higher (unchanged), but 42 percent reported profits falling, a three point improvement from July. Seasonally adjusted, a net three percent reported raising worker compensation, only five points better than February’s record low reading of negative two percent. Labor costs are still under control, good news for those worried about inflation but bad news for workers. In past recovery periods, compensation improved at a much faster pace than we have experienced in this recovery period.

CREDIT MARKETS
A near record low 31 percent of all owners reported borrowing on a regular basis, which is then not surprising that reported and planned capital spending are at 35 year record low levels. Those looking for loans predominately are looking for cash flow support, not funds to expand or hire.

Commentary:
[...] Inflation? Not a threat. Far more owners have cut prices than raised them for 21 months in a row. Deflation? It certainly feels that wayto a quarter of the owners reporting price declines for the goods and services they produce and sell. [...]

No comments: