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Dunkelberg: Optimism Grows for Small Business Owners

William Dunkelberg|Chief Economist, National Federation of Independent Business
Tuesday, 8 Mar 2011 | 10:47 AM ET

The economy continues to recuperate from the recession, but slowly, no “miracle cure” from the government or the Fed.

The small business sector (producers of half of private GDP) has been a laggard in the recovery, while manufacturing and exporting have led the way.

But, “Main Street” seems to be finding its legs.

The National Federation of Independent Business(NFIB) reported the fourth monthly gain in its Optimism Indexfor small business owners, that’s the good news. The bad news is that the Index, at 94.5, is still well below the 30 year average prior to the recession of 100.

The good news was an improvement in the percent of owners with “hard to fill” job openings, a strong indicator of the direction of the unemployment rate, and in the net percent of owners planning to increase total employment (create jobs).

The reported gain in employment per firm was the best in three years.

The onset of the recession precipitated the most massive reduction in employment recorded in the NFIB surveys (started in 1973), but that now seems to be over (confirmed by the first really good jobs report for February).

Still, the “employment gap” is large.

We produce as much GDP as we did in the peak in 2007, but are using 6.8 million fewer workers to do it. The rebound in spending in the services sector has been weak, and a million housing starts are still “MIA” (relative to demographics etc.). At, say, 5 jobs per start, this could account for 5 million missing jobs.

Small Biz Optimism on Tap
For the first time in three years, owners report solid job creation, according to the National Federation of Independent Business' latest survey. Bill Dunkelberg, NFIB's chief economist discusses the results with CNBC's Steve Liesman

The bad news was a lack of improvement in capital spending and expansion plans.

The “cutting” is over, but the “building” has not really started.

The massive reduction in inventories (too large based on a “0” saving rate consumer in 2007) appears to be over with more owners reporting inventories “too low” than “too high”, unusual in NFIB survey history.

But what his has meant is that after 28 months with more owners reporting lower selling prices than higher, the “fire sale” is over. In February, 5 percentage points more firms reported raising prices than cutting and the highest percentage in 3 years (21%) plan to raise prices in the coming months (and little if any of this is related to oil and commodity prices). Inflation is returning to Main Street.

There is still much uncertainty in the political environment (e.g. tax rates and regulatory burdens), and with still lagging consumption (up 1% from a year ago) and housing, the small business sector is still not poised to make a significant contribution to economic growth (that is to say - like 1983 with GDP growth rates of 8%).


William Dunkelberg is an Economic Strategist, Boenning & Scattergood and Chief Economist, National Federation of Independent Business.

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