WASHINGTON (MNI) – The following is the text of the National
Federation of Independent Business’ monthly Small Business Optimism
index published Tuesday:

For the second consecutive month, small-business optimism rose 1.8
points, according to the National Federation of Independent Business
(NFIB) Optimism Index; the small but notable gain settled the December
reading at 93.8. This represents the fourth monthly increase since
September, suggesting that the rising trend might stick. However, a
comparative look at early 2011 shows the Index rising in the early part
of the year, only to decline in March and April.

“Much of December’s gain resulted from the fact that concerns about
business conditions over the next six months have subsided and because
many small-business owners have improved their expectations for real
sales gains in the coming months,” said NFIB Chief Economist Bill
Dunkelberg. “But make no mistake: the economic winter is still here.
Similar gains in the early part of 2011 quickly faded, and the Index is
still well below where it should be at this point in the recovery. The
economy appears to be slowly recovering, resolving imbalances in debt,
housing and the like. But, it is unlikely that growth will be much
better than 2011 even with a solid fourth quarter GDP growth. There is
still a lot of work to be done.”

While the Index has gained 5.7 points over the last four months
with several indicators posting notable gains, the total reading is
still in recession territory. The Index is still 6 points below the
pre-recession average and more than 10 points below the same point in
the recovery from the 2001 recession. The gains in the Index are
supportive of the view that economic growth will pick up in 2012, but
nothing dramatic. The level of the Index is consistent with weak growth.

Optimism Components Net % Change

PLAN TO INCREASE EMPLOYMENT 6 -1

PLAN TO INCREASE CAP. OUTLAYS* 24 0

PLAN TO INCREASE INVENTORIES 2 2

EXPECT ECONOMY TO IMPROVE -8 4

EXPECT HIGHER REAL SALES 9 +5

CURRENT INVENTORY
SATISFACTION 0 +1

CURRENT JOB OPENINGS* 15 -1

EXPECTED CREDIT CONDITIONS -9 +1

NOW A GOOD TIME TO EXPAND* 10 +2

EARNINGS TRENDS -22 +6

* Note: These components are measured as actual percentages of all
respondents and are not net percentages. A net percentage is the percent
positive minus percent negative.

Some other highlights of December’s Optimism Index include:

– Reports of positive earnings trends were 6 points better in
December at a net negative 22 percent of all owners. The improvement in
retail sales gave some owners a needed boost. Not seasonally adjusted,
16 percent reported profits higher (up 2 points), and 37 percent
reported profits falling (down 3 points). Still, profits showed a dismal
performance historically.

– Fifteen (15) percent (seasonally adjusted) reported hard to fill
job openings, down 1 point but the second highest reading in 39 months.
Over the next three months, 9 percent plan to increase employment (down
2 points), and 8 percent plan to reduce their workforce (down 3 points),
yielding a seasonally adjusted net 6 percent of owners planning to
create new jobs. This is a 1 point decline from November but still one
of the strongest readings for 2011 and the second highest reading since
September 2008. Forty-five (45) percent of owners hired or tried to hire
in the past three months, but 34 percent of them reported few or no
qualified applicants for the position(s). The NFIB unemployment forecast
models (based on reports of poor sales or on job openings and plans to
increase employment shown below) indicates that the unemployment rate
will drift into the mid to low 8 percent range in 2012.

– Sales remain a problem for many small businesses. The net percent
of all owners (seasonally adjusted) reporting higher nominal sales over
the past three months gained 4 points, rising to a net negative 7
percent, which means that there are still more firms with sales trending
down than those who are seeing their sales trend upward. In spite of
reports of improving retail sales in the fourth quarter of 2011, 23
percent of owners reported “weak sales” as their top business problem.

– However, expectations for future sales have improved, with the
net percent of owners expecting higher real sales. This indicator gained
5 points in December, for a net 9 percent of all owners (seasonally
adjusted). December’s increase builds on the 8 point improvement in
November, but remains 4 points below January 2011’s reading. Not
seasonally adjusted, 25 percent expect improvement over the next three
months (up 1 point) and 34 percent expect declines (down 5 points).

– The frequency of reported capital outlays over the past six
months rose 3 points to 56 percent, the third monthly increase in
succession after vacillating between 44 and 52 percent since December
2008. The record low of 44 percent was reached most recently in August
2010. Overall, the spending picture has improved, but still far short of
“normal.” The percent of owners planning capital outlays in the next 3
to 6 months held at 24 percent, the highest reading in 40 months, also
reached in March and November of this year. Money is available, but
most owners are not interested in a loan to finance the purchase of
equipment they don’t need.

– Access to credit continues to rank at the bottom of concerns,
with only 4 percent reporting financing as their No. 1 business problem.
Ninety-three (93) percent of owners reported that all their credit needs
were met or that they were not interested in borrowing. Seven percent
reported that not all of their credit needs were satisfied, the record
low is 4 percent, reached in 2000. Fifty percent said they did not want
a loan or 64 percent if including those who did not answer the question,
presumably uninterested in borrowing as well. While weak sales remain
the top business problem, lack of demand for credit will likely
continue. Thirty-one percent of all owners reported borrowing on a
regular basis, down 3 points. A net 8 percent reported loans “harder to
get” compared to their last attempt, for a drop of 2 points. The net
percent of owners expecting credit conditions to ease in the coming
months was a seasonally adjusted negative 9 percent (more owners expect
that it will be “harder” to arrange financing than easier), a 1 point
improvement over November.

** Market News International Washington Bureau: 202-371-2121 **

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