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

After taking a dip in March, the Index of Small Business Optimism
gained 2 points in April, settling at 94.5. The reading is the highest
since December 2007, however, April’s gain only returns the Index to its
February 2011 level, indicating that in a year, the net gain has been
zero. While March did not post strong job creation numbers, labor market
indicators did improve, suggesting better job growth in the next few
months.

“While the Index remains historically weak, there was good news in
the details of April’s report. Job creation plans, job openings and
capital spending plans all increased. Hopefully, this performance will
hold in the coming months,” said NFIB Chief Economist Bill Dunkelberg.
“However, GDP and employment growth news has not been good; the Euro
debt crisis continues to make news and Congress leaves us on an
identical path: huge deficits, a terrifying amount of liquidity at the
Fed, and no indication that anything positive will be done. Most likely,
there will be only small improvements on Main Street in optimism or
hiring and spending this year. With the election six months away, the
Index will signal how small firm owners see the economy’s future
unfolding-and their outlook will be telling.”

Among the owners surveyed, most remain very satisfied with current
inventory holdings. However, owners indicated that they do no plan on
adding, consistent with a small deterioration in their expectations for
real sales gains in the coming months. The percent of owners reporting
positive sales trends quarter on quarter reached the highest level seen
since April 2006. This was a major contributing factor to the huge
improvement in reported profit trends, an 11 point gain and equal to
half the improvement of the Index.

Some other highlights of April’s Optimism Index include:

– Earnings and Wages: Overall, April was a great report for profits
and sales, hopefully the beginning of a solid trend. Reports of positive
earnings trends improved by 11 points, settling at a negative 12 percent
in April-the best reading since April 2007. The improvement was driven
by sales trends reports, also the highest since April 2007. Not
seasonally adjusted, 19 percent of small firm owners reported higher
profits (up 5 points), and 37 percent reported profits falling (down 6
points). Profits are the major source of capital for financing hiring
and expansion for small firms, making this a very significant and
welcome development. Three percent of owners reported reduced worker
compensation and 18 percent reported raising compensation, yielding a
seasonally adjusted net 14 percent reporting higher worker compensation,
the highest reading in 39 months and unchanged from March. A net
seasonally adjusted 9 percent plan to raise compensation in the coming
months also unchanged from March.

– Sales: Also a highlight of the April report, the net percent of
all owners (seasonally adjusted) reporting higher nominal sales over the
past three months gained another 3 points to 4 percent. This comes after
a surprising 8 point gain in March, one of the only positive trends for
that month. Nineteen (19) percent of owners still cite weak sales as
their top business problem, a high reading, but far below the record 33
percent reading from December 2010. Sales are improving broadly in the
small business sector, albeit not dramatically. Seasonally unadjusted,
25 percent of all owners reported higher sales, and 30 percent of owners
reported lower sales (down 1 point). The net percent of owners expecting
higher real sales in the months to come lost 2 points, falling to a net
6 percent of all owners (seasonally adjusted). Forty-one (41) percent of
owners (no seasonally adjusted) expect improvement over the next three
months (down1 point) and 19 percent expect declines (up 3 points). The
improvement in sales trends is not indicative of a strong recovery but
is a positive sign for small-business owners.

– Job Creation: The net change in employment per firm (seasonally
adjusted) came in at 0.1; this is down from March but still positive.
Seasonally adjusted, 12 percent of owners surveyed added an average of
3.3 workers per firm over the past few months, and 14 percent reduced
employment an average of 2.9 workers per firm. The remaining 74 percent
of owners made no net change in employment. Forty-seven (47) percent of
owners hired or tried to hire in the last three months. Thirty-four (34)
percent of owners (or 72 percent of those trying to hire or hiring)
reported few or no qualified applicants for positions. While firms have
eased lay-offs, they haven’t resumed strong hiring. Unemployment claims
remain high and seasonal adjustments are off track as hiring, normally
done in March and April, may have occurred earlier in the year. The
percent of owners reporting hard to fill job openings rose 2 points to
17 percent, one point below the January 2012 reading which is the
highest we’ve reported since June 2008. Hard-to-fill job openings are a
strong predictor of the unemployment rate, making the gain in openings a
welcome development. The net percent of owners planning to create new
jobs is 5 percent, a 5 point increase after taking a plunge in March.
Not seasonally adjusted, 18 percent plan to increase employment at their
firm (up 3 points), and 5 percent plan reductions (unchanged from
March).

– Inflation: Inflation may become a problem for the small-business
community in the months to come. Twenty-six (26) percent of the NFIB
owners reported raising their average selling prices in the past three
months (up 1 point), and 16 percent reported price reductions (down 1
point). Seasonally adjusted, the net percent raising selling prices was
8 percent, up 2 points from March and 9 points from January. Overall,
price hikes were quite pervasive as owners respond to rising input costs
(labor and materials) and try to pass those costs on to customers.
Twenty-five (25) percent of owners plan on raising average prices in the
next few months, while 2 percent plan reductions. Seasonally adjusted, a
net 23 percent plan price hikes, up 2 points from March and 9 points
higher from December. Price-cutting appears to be fading and this will
put upward pressure on the inflation measures.

Optimism Components : Net % Change

PLAN TO INCREASE EMPLOYMENT 5 5
PLAN TO INCREASE CAP. OUTLAYS* 25 3
PLAN TO INCREASE INVENTORIES 0 0
EXPECT ECONOMY TO IMPROVE -5 3
EXPECT HIGHER REAL SALES 6 -2
CURRENT INVENTORY SATISFACTION 0 -3
CURRENT JOB OPENINGS* 17 2
EXPECTED CREDIT CONDITIONS -8 3
NOW A GOOD TIME TO EXPAND* 7 0
EARNINGS TRENDS -12 11

*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.

Today’s report is based on the responses of 1,817 randomly sampled
small businesses in NFIB’s membership, surveyed throughout the month of
April.

** MNI Washington Bureau: 202-371-2121 **

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