Recovery at Hand for Small U.S. Businesses?

Owners of small U.S. businesses don’t seem to be experiencing an economic rebound. Not by a long shot. They also appear to have little confidence that better times are near. This is in contrast to both public equities (i.e., the “stock market”) run that continues unabated and regular media reports of improvements in global macroeconomic indicators. Here are excerpts from the National Federation of Independent Business (NFIB) January 2010 survey of U.S. business owners (2010 Small Business Economic Trends Report).“2009 did not end on an uplifting note,” reads the January 2010 Small Business Economic Trends report issued by the National Federation of Independent Business (NFIB). In its most recent survey of managers of smaller U.S. businesses (a mean employee count of 13):

• Profits continue to fall. Just 12% of owners reported higher earnings the past three months (4Q09) compared to the three months prior (3Q09), though 3Q09 was a terrible quarter for earnings.
• Owners reported lower revenue over the past three months and see no increase in revenue in the ensuing three months. The percentage of business owners reporting lower sales for the quarter remained near the record low reported in March 2010 and 51% of owners surveyed expect even lower revenue the next three months.
• Capital spending remains at a record low. Just 44% made a capital expenditure in the past six months (lowest level since survey began in 1979) and a mere 18% plan to make one or more in the next three to six months (just two points above the 35-year low).
• Owners continued to shed inventory and plan to shed more. The inventory index recorded its largest inventory decline since the survey began. This is shocking, given that small businesses have been shedding inventory since mid-2007. Moreover, more reductions can be expected as more owners plan to reduce inventory levels going forward than plan to increase.
• Owners became more pessimistic in December and overall optimism remained at historic lows.“Optimism has clearly stalled,” said NFIB. The Index of Small Business Optimism fell in December 2009 to its second-lowest reading since 1980 (the lowest was in March 2009).

The U.S. Federal Reserve tracks economic activity across a much broader group of indicators and includes data such as consumer spending, tourism and commodity prices. The January 13 Federal Reserve “Beige Book” reports a modest economic recovery throughout the United States. It also found some optimism among manufacturers, in apparent contrast to the recent NFIB report.

Lots of Fuel but No Fire

We are more than two years into this recession. One would expect inventories would have long ago been reduced to minimum levels (and thus a mild resumption of inventory purchases) and that profits would begin to rise due to prior cost reductions (both of which should stimulate economic growth).

• Interest rates remain at historic lows (an economic stimulus).
• The federal government is spending like mad (an economic stimulus).
• Federal and state taxes remain below historic peaks (an economic stimulus of sorts).

When will the recovery arrive for owners of small and midsize U.S. companies? Your guess is as good as mine, but historically recessions do end and it seems there can be nowhere but up from here. Of course, we’ve been saying this for months now and, according to the NFIB, we continue to be proven wrong.