Small Business Optimism Gains (If You're an Optimist)
BY Michael Aneiro
Dec. 16, 2004--A pair of studies released this week offered conflicting perspectives on the economic outlook among small business owners.
The first report, the Small Business Optimism Index, showed optimism matching a 30-year record in November. The index, based on a monthly survey of small-business owners conducted by the National Federation of Independent Business (NFIB), a not-for-profit advocacy group, climbed almost four points to 107.7. The NFIB attributed the increase to gains in three key index components: a 17 point spike among those who believe the economy will be better six months from now, a 13 point increase in the number who expect higher real sales in the next three months and a nine point boost in those who say now is a good time to expand.
"There was a surge in expectations, some of it probably due to the end of the election's uncertainty," said NFIB Chief Economist William Dunkelberg in the report.
The NFIB said that job creation in November reached the highest level ever recorded, with 18% of respondents reporting increasing employment while just 11% reported reductions. The number of firms planning to create new jobs rose four points to 19 percent. Inventory-accumulation plans also touched a 30-year record, according to the report, while optimism remained high regarding economic growth prospects in 2005. The share of companies planning to spend capital, however, fell four points to 30%.
Another report released by PricewaterhouseCoopers painted a less-rosy picture. That survey, based on interviews of CEOs at 355 of the fastest-growing privately held U.S. companies, found a drop in the percentage of respondents who were optimistic about the American economy's prospects over the next year. While domestic optimism fell, the report showed a surge in optimism regarding the world economy.
The report also found a sharp increase in respondents who cited weak market demand as a possible barrier to growth in the coming year.
"Weak demand is by far the greatest and fastest growing concern among 'trendsetter' CEOs," said Jay Mattie of PricewaterhouseCoopers in the report. "Certainly, abnormally high energy prices are a contributor, draining cash and creating a hesitation to make purchase decisions."
According to the report, plans for new hiring over the next 12 months dipped from the previous quarter but remained relatively high. The report found executives are holding steady in their plans for new capital investments, with 44% planning major new investments over the next year at an average spending level of 11.7% of revenues.