Small Matters: Survey: Sinking sales, too many rules cited

Posted: August 08, 2011

What's the most important problem facing small-business owners today? According to the 350,000 members of the National Federation of Independent Business (NFIB), it is mostly a combination of sinking sales and too many tax and regulatory hurdles.

The federation survey also allows comparisons between Philadelphia-area businesses and their peers nationally. For example, 29 percent of business operators in the Philadelphia region contend that "poor sales" are their biggest challenge. Nationally, slow sales is the primary difficulty for 23 percent of small businesses.

To add some perspective, these statistics, and others, are among the most pessimistic on record in the 35 years of NFIB surveys. They also show this is the weakest recovery from a recession since 1973, when NFIB data were first available.

Here are some of the other responses in the survey.

Taxes and regulations? Nationally, 36 percent of respondents said those were the biggest challenges, while only 30 percent of regional operators agreed.

Of course, owners can only pick one cause at a time, so if sales are really a problem locally, then that concern will trump taxes and regulations.

Only 4 percent of business owners locally and nationally cited financing as the top problem.

Only 6 percent in each group thought that the current period was a good time to expand their businesses substantially.

Few firms are optimistic about the future of the economy, with 11 percent of Philadelphia-area respondents expecting business conditions to improve, vs. 12 percent nationally.

Yet, more firms nationally expect the economy to weaken (32 percent) than local owners (23 percent) expect.

Twenty-seven percent of national business owners expect their sales to increase this year vs. 22 percent in the Philadelphia region.

This is a bleak picture, and it explains why businesses are not interested in hiring. Locally, 10 percent plan to increase employment in the next few months, but 12 percent plan to reduce employment. Nationally, the numbers are virtually the same - 10 percent plan to increase, and 11 percent intend to reduce.

Capital-spending plans are also depressed: Regionally, just 16 percent expect to increase spending vs. 20 percent nationally. These are recession levels, to be sure. In good times, readings would be double these levels.

Weak capital spending reduces the gross domestic product (GDP) - a direct hit to the economy - but it also reduces the opportunities to raise worker productivity and compensation in the future. An employee with a snowplow can move more snow and earn more money than one with just a shovel can.

With a poor outlook for sales growth, it is no surprise that more Philadelphia owners plan to reduce inventories (18 percent) instead of adding to them (15 percent). Nationally, 15 percent plan to reduce, 10 percent expect to add.

So, orders to big manufacturers will be weak, as small firms - the final interface between manufacturers and consumers - won't be adding to stocks in anticipation of better sales.

Need a loan? Sixty-three percent regionally said they were not interested (64 percent nationally), 31 percent here reported all credit needs satisfied (28 percent nationally), and 6 percent in the Philadelphia region said they did not get all the credit they wanted (8 percent nationally).

With too-few customers, which translates to paltry consumer spending and low consumer confidence, small businesses have no need to borrow to finance inventories, or expansion, or hiring. Owners worry that such investments are unlikely to add enough value to repay the loan.

Perhaps the federal budget deal recently reached will stir more optimism about the future, which in turn will encourage more spending and hiring. Time (and statistics later in the year) will tell how it is all working out.

For now, it appears that small businesses - which produced half of the nation's nongovernment output and employ 60 percent of the private workforce - are "in the tank." Let's hope it gets better soon.


Bill Dunkelberg is a professor of economics at Temple University and a nationally recognized expert on small business. Contact him at dunk@temple.edu.

 

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