Small businesses are a staple in our society. “They are the heart of America.” “They are the epitome of the American dream.” So on and so forth… Well for the past few years they have had a rough go of it. Small businesses have been in the spotlight throughout the recession, and it’s no secret that it has been a long, hard road, but that road may be getting a little smoother. A recent report from the National Federation of Independent Business shows that the confidence of small business is rising to its highest levels in over a year. The Small Business Optimism Index from the NFIB showed a 2 percentage point rise up to 94.5%.
So to most of us, that number doesn’t mean a whole lot. You’re probably thinking, “94.5%, that would earn you a solid “A” back in your grammar school days.” But there is a lot to examine inside of that number before we start putting “Superb” stickers on this test. That number is the wizard, but we want to see what’s behind the curtain. Here’s a quick breakdown of the numbers behind that 94.5% and what it means to you.
One large factor in the increase was in the net earnings of the companies. The subindex in this category jumped 11 points, giving it the highest numbers we have seen since 2007. This increase can claim half of that total increase for the overall optimism. So the good news is that the 11 point jump was due mostly in part to increased sales, which means people are beginning to open their wallets back up as we approach what some hope to be a steep climb out of our recession.
But there’s bad news… the small businesses aren’t jumping on the recovery bandwagon as they continue to be slow to hire. The net change in employment for the small businesses per firm remained at a dismal .10 for the third straight month. Now that .10 maybe slightly misleading, but it essentially means that every small business in America hired one tenth of a person in April. It doesn’t seem very impressive, but we can take a quote out of President Obama’s book of wisdom “If you’re walking down the right path and you’re willing to keep walking, eventually you’ll make progress.” As long as small business owners don’t get tired, they seem to be moving slowing in the right direction.
Unfortunately, there is another famous quote, this one from Dr. Martin Luther King, that is just as applicable. “All progress is precarious, and the solution of one problem brings us face to face with another problem.” That other problem is inflation. More and more small businesses are raising their prices to cover the increasing costs of labor and supplies. The net percent of businesses raising selling prices jumped 2 points to 8% for the month of April. The Federal Reserve is depending on low inflation rates to support their policy for future years, but trends show that small businesses are fading away from price cutting and are being forced to push their prices higher and higher. This inflation is something that will be of concern for small business owners in the coming months.
Speaking of those coming months, the portion of the study that measures the expected business conditions for the next six months increased 3 points, bringing that percentage up to only -5%. It’s a step in the right direction, although many Americans are tired of steps and are looking for the giant leaps they have been waiting for.
What may be the most important factor stemming from these numbers is the effect that they will have on voters come November. The economy has been, and will continue to be, the central issue around which the presidential election will revolve. These numbers are extremely suggestive as to how small business owners, and people on Main Street in general, are feeling about the economy and the direction that they believe it is headed.
So, we return to the old adage, “As goes small business, so goes the nation!” Small business owners are still on their long and arduous journey through our economic struggles but they continue to make moves toward success. We aren’t quite ready to hand out that “Superb” sticker just yet, but a “Good Effort” or “Keep It Up” stamp would be well deserved.
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