Small Businesses confirm their trend over the past many months: economy still deleveraging and deflating

Here are some quotes from the latest NFIB small business monthly report:
[…] a seasonally adjusted net negative three percent of owners planning to create new jobs, down four points from August, The decline in hiring plans is an unexpected reversal in job creation prospects. Hiring plans continue to underperform the recoveries following previous recessions.

The environment for capital spending is not good. […] Six percent characterized the current period as a good time to expand facilities, up two points, but historically low. A net negative three percent expect business conditions to improve over the next six months, a five point improvement from August, but still more owners expect the economy to weaken than strengthen.

[…] Overall, it does not appear that sales trends are yet supportive of a recovery in the small business sector. The net percent of owners expecting higher real sales lost three points from August, falling to a net negative three percent of all owners (seasonally adjusted) – a dismal outlook. Hiring and capital spending depend on expectations for growth in future sales, so the outlook for improved spending and hiring is not good. Small business owners continued to liquidate inventories and weak sales trends gave little reason to order new stock. […] September is the 30th negative double digit month in a row and the 40th negative month in a row for inventory reductions.

The weak economy continued to put downward pressure on prices. Seasonally adjusted, the net percent of owners raising prices was a negative 11 percent, a three point decline. September is the 22nd consecutive month in which more owners reported cutting average selling prices that raising them.
[…] On the cost side, four percent of owners cited inflation as their number one problem and only three 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.

Overall, 91 percent reported that all their credit needs were met or that they were not interested in borrowing.[…] The historically high percent of owners who cite weak sales means that investments in new equipment or new workers are not likely to “pay back” and thus loans taken to finance the outlays can’t be repaid.
A near record low 33 percent of all owners reported borrowing on a regular basis. Reported and planned capital spending are at 35 year record low levels, so fewer loans are needed. Sounds like weak credit demand. Those looking for loans predominately are looking for cash flow support, not funds to expand or hire.[…]

[…] Inflation? Not a threat. Far more owners have cut prices than raised them for 21 months in a row. Deflation? It certainly feels that way to a quarter of the owners reporting price declines for the goods and services they produce and sell, and apparently a majority at the Federal Reserve are now worried. New “inflation targets” are being floated out there, like two percent (characterized as price stability?). This will be the justification for more “quantitative easing”. Buying more Treasury securities may push rates even lower, but to what end? The impact on home sales will surely be minimal. With mortgage rates at record low levels already, even lower rates are unlikely to invite new entrants to the market. Of course, there may be other “agendas” such as a weakening of the dollar and support for asset prices. This is very dangerous as hundreds of billions of dollars are being “allocated” based on false prices (interest rates). The charade can’t be maintained forever and weakening the dollar only invites others to join the party. And lost in all of this focus on credit is the loss of hundreds of billions in interest rate income for savers. Certainly their spending has been curtailed as a result. Every dollar a borrower saves from some sort of refinance deal is a dollar of interest income lost to savers […]
Now, the writer of this report certainly does understand the economy and think as an Austrian economist. He debunks very easily all the nonsensical theories of the Keynesians and Monetarists. Chapeau bas!


GMS said...

Agreed and it will continue downward for some time. Nevada legislature meets every other year and this upcoming session begins Feb (until June) - just 120 days and all that is coming are MORE CUTS! Yikes. Interest rates for home loans are at all time lows, and still not helping. Interesting article - thanks!

pej said...

Thanks GMS.
Wait & see, but so far, I don't see any driver for the SMB in the US, nor anywhere else to be honest...