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Economic Update
Inflation data was the focus of economists and financial market participants this week.
Inflation
Employment
Manufacturing
Small Business
Perspectives
For anyone who has visited castles or read about them, you know that most castles were set up with a two layer defense system. They had the outer wall as the first layer of protection for the castle owner and then an inner wall as the second layer. To me, small businesses are the outer wall for the economy and consumers are the inner wall. For most “Main Street” American cities, small businesses are the engine for jobs growth that supports and fuels economic growth. They are what help protect the economy from recession. If small businesses come under pressure due to a variety of factors including, but not limited to, supply and labor shortages, high prices or wages, reduced sales or increased competition, their profitability falls or evaporates. As this line of defense starts to deteriorate, consumers are then coming under increasing pressure. Needless to say, the two are entwined.
For the past month I have provided perspective on the “inner wall” (consumer) in the current economic environment. Today I want to focus on the “outer wall” (small business). With the current Small Business Optimism report from the NFIB released this week, I think it is an appropriate time to revisit the world of small businesses.
The NFIB surveys its constituents each month to “take the pulse” of small businesses in a variety of categories. Its survey focuses primarily on whether the categories surveyed have improved or deteriorated. It is not designed to be a quantitative survey that lets us know what levels exist (amount of sales, number of jobs added, etc.)
Observations
General
Labor
Earnings
Prices
Compensation
Capital Investment
Summary
Conclusion
Even though spring seems to be stubborn about arriving, I will be on vacation next week practicing what I preach regarding small businesses. I will be on a bicycle ride — with my son — across the state of Washington (Puyallup to Spokane) via the multiple trails that exist. We will be supporting the local leisure and hospitality industry as we go because I am too old for “roughing it” by camping. Hopefully, we won’t utilize any of the local medical facilities!
Enjoy your weekend.
DATA TABLES
Description of Survey Components:
Outlook for Expansion
Outlook for General Business Conditions
Earnings Changes
Sales Changes
Sales Expectations
Price Changes
Price Plans
Employment Changes
Lack of Qualified Job Applicants
Job Openings
Hiring Plans
Compensation Changes
Compensation Plans
Regular Borrowers
Availability of Loans
Borrowing Needs Satisfied
Expect Easier Credit Conditions
Relative Interest Rate Paid
Actual Interest Rate Paid
Inventory Changes
Current Inventory
Inventory Plan
Capital Expenditures
Capital Expenditure Plans
Source: NFIB
“High” is the highest level over the past 5 years
“Low” is the lowest level over the past 5 years
Topic |
April 2022 |
February 2020 |
High |
Low |
Optimism Index |
93.2 |
104.5 |
108.8 |
90.9 |
Outlook for Expansion |
4% |
26% |
34% |
3% |
Outlook for General Business Conditions |
-50% |
22% |
48% |
-50% |
Earnings Changes |
-17% |
-4% |
3% |
-17% |
Sales Changes |
3% |
5% |
15% |
-31% |
Sales Expectations |
-12% |
19% |
29% |
-42% |
Price Changes |
70% |
11% |
72% |
-18% |
Plans For Price Changes |
46% |
20% |
50% |
-3% |
Employment Changes |
-2 |
13 |
13 |
-16 |
Lack of Qualified Job Applicants |
55 |
52 |
60 |
37 |
Job Openings |
47 |
38 |
51 |
30 |
Hiring Plans |
20 |
21 |
32 |
1 |
Compensation Changes |
46 |
36 |
50 |
14 |
Compensation Plans |
27 |
19 |
32 |
7 |
Regular Borrowers |
26 |
28 |
34 |
20 |
Availability of Loans |
-4 |
-1 |
-1 |
-6 |
Borrowing Needs Satisfied/Not Satisfied |
26%/2% |
32%/2% |
37%/4% |
23%/3% |
Topic |
April 2022 |
February 2020 |
High |
Low |
Expect Easier Credit Conditions |
-5% |
-1% |
-1% |
-6% |
Trend of Interest Rate for Borrower |
16% |
-3% |
-13% |
24% |
Actual Interest Rate Paid |
5.3% |
5.4% |
7.8% |
4.1% |
Inventory Changes |
4% |
6% |
7% |
-15% |
Current Inventory |
6% |
-4% |
15% |
-7% |
Inventory Plans |
1% |
2% |
12% |
-4% |
Capital Expenditures |
54% |
62% |
64% |
47% |
Capital Expenditure Plans |
27% |
26% |
33% |
18% |
Single Most Important Problem
Topic |
Current |
1 Year Ago |
High |
Low |
Inflation |
32% |
6% |
41% |
0% |
Labor Supply |
23% |
24% |
28% |
3% |
Taxes |
14% |
19% |
32% |
8% |
Cost of Labor |
8% |
8% |
13% |
2% |
Government Regulations |
8% |
13% |
27% |
4% |
Other |
6% |
8% |
31% |
1% |
Poor Sales |
4% |
8% |
34% |
2% |
Cost/Availability of Insurance |
4% |
6% |
29% |
3% |
Financing & Interest Rates |
1% |
1% |
37% |
0% |
Competition From Large Businesses |
0% |
7% |
14% |
0% |
Most Important Reason For Expansion Outlook
Reason |
Good Time |
Not Good Time |
Uncertain |
Economic Conditions |
2% |
36% |
20% |
Sales Prospects |
3% |
1% |
1% |
Financing & Interest Rates |
1% |
1% |
1% |
Cost of Expansion |
0% |
4% |
3% |
Political Climate |
0% |
11% |
8% |
Other/Not Available |
0% |
3% |
1% |
Most Important Reason For Lower Earning
Reason |
Current Month |
1 Year Ago |
2 Years Ago |
Sales Volume |
9% |
12% |
16% |
Increased Costs |
18% |
9% |
5% |
Cut Selling Price |
3% |
2% |
35 |
Usual Seasonal Change |
5% |
5% |
6% |
Other |
1% |
2% |
9% |
Type of Capital Expenditures Made
Type |
Current Month |
One Year Ago |
Two Years Ago |
Vehicles |
24% |
25% |
21% |
Equipment |
40% |
42% |
36% |
Furniture & Fixtures |
11% |
12% |
10% |
Additional Building or Land |
8% |
6% |
5% |
Improved Buildings or Land |
14% |
15% |
13% |
Amount of Capital Expenditures Made
Amount |
Current Month |
One Year Ago |
Two Years Ago |
$1 to $999 |
2% |
2% |
3% |
$1,000 to 4,999 |
5% |
7% |
8% |
$5,000 to $9,999 |
4% |
5% |
6% |
$10,000 to $49,999 |
16% |
17% |
19% |
$50,000 to $99,999 |
12% |
9% |
11% |
$100,000+ |
16% |
15% |
11% |
No Answer |
0% |
% |
1% |
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