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

Small-business optimism gained 0.8 points in September, according
to the National Federation of Independent Business’ (NFIB’s) latest
Index, ending a six-month decline. However, NFIB’s chief economist
cautions that in spite of this uptick, there is little among the 10
Index components that can be considered “positive.” Reports of owners
expecting real sales to improve were higher than last month, but were
still negative. Similarly, owners expecting better business conditions
in six months increased modestly, but this reading also remained
negative.

“An increase in consumer spending would be the best imaginable
stimulus right now, not gimmicky Washington policies,” said NFIB Chief
Economist Bill Dunkelberg. “Promising temporary tax cuts financed by
permanent income tax increases will not help many small-business owners
who pay taxes based on personal-not corporate-tax rates. The key to
economic recovery is restoring the confidence of consumers; only then
will small businesses begin to see the sales they need to expand. If
consumers fear the path we are on, then ‘less is more’ policies that
reduce the size of government will increase confidence.”

Optimism Components Net % Change

PLAN TO INCREASE EMPLOYMENT 4 -1
PLAN TO INCREASE CAP. OUTLAYS* 20 -1
PLAN TO INCREASE INVENTORIES -2 +3
EXPECT ECONOMY TO IMPROVE -22 +4
EXPECT HIGHER REAL SALES -6 +6
CURRENT INVENTORY SATISFACTION -1 -2
CURRENT JOB OPENINGS* 14 -1
EXPECTED CREDIT CONDITIONS -12 +1
NOW A GOOD TIME TO EXPAND* 6 +1
EARNINGS TRENDS -27 -1

* 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.

Twenty-eight percent of small-business owners reported that poor
sales is still their top business problem. In fact, poor sales has been
the top business problem for small-business owners for the past three
years. The net percent of owners expecting better business conditions in
six months was a negative 22 percent, up 4 points from August, but 32
percentage points lower than January. Not seasonally adjusted, 38
percent expect deterioration and only 9 percent expect improvement.
Other highlights of September’s Optimism Index include:

– The net percent of all owners (seasonally adjusted) reporting
higher nominal sales over the past three months lost 1 percentage point,
falling to a net negative 10 percent, with more firms reported sales
trending down than those who report sales trending up. While still
negative, this is one of the best readings in over 40 months.
Unadjusted, 25 percent of all owners reported higher sales (down 2
points) while 29 percent reported lower sales (up 1 point).

– The future for small-business sales also remains weak. The net
percent of owners expecting higher real sales gained 6 points from
August to a net negative 6 percent of all owners (seasonally adjusted),
but still 19 points below January’s reading. Over the next three months,
22 percent of owners (not seasonally adjusted) expect improvement (up 1
point) and 36 percent expect declines (up 2 points). Based on these
numbers, it would appear that owners have lost confidence in the economy
and perhaps even in the government’s ability to assist in the recovery.

– In September, the employment picture remained bleak. Fourteen
percent (seasonally adjusted) reported unfilled job openings, down 1
point from August. Over the next three months, 11 percent plan to
increase employment (unchanged), and 12 percent plan to reduce their
workforce (unchanged), yielding a seasonally adjusted 4 percent of
owners planning to create new jobs, also down 1 point from August. To
provide some historical context: in a typical expansion, this Index
component usually has double digit readings.

– According to September’s data, fewer owners are investing in
their businesses. Essentially, owners are “on hold” as weak sales
continue to depress the small-business economy. Over the past six
months, the frequency of reported capital outlays fell 2 points-with 50
percent of all firms making such expenditures-a level where it has
stalled for several years. Of those making expenditures, 35 percent
reported spending on new equipment (down 1 point), 17 percent acquired
vehicles (down 3 points), and 13 percent improved or expanded facilities
(unchanged). Six percent acquired new buildings or land for expansion
(up 1 point) and 9 percent spent money for new fixtures and furniture
(down 1 point). The percent of owners planning capital outlays in the
next three to six months fell 1 point to 20 percent, a recession level
reading that has typified the recovery to date.

– Access to credit continues to be a problem that plagues few of
those surveyed; only four percent reported financing as their No. 1
business problem. Ninety-two percent reported that all their credit
needs were met or that they were not interested in borrowing, while only
eight percent reported that not all of their credit needs were
satisfied. Fifty-one percent of those surveyed said they did not want a
loan. A net 10 percent reported loans “harder to get” compared to their
last attempt (asked of regular borrowers only), down 3 points. The weak
recovery provides little incentive to borrow to support expansion or buy
new equipment, even if interest rates are low.

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

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