Re: Small Business Outlook
8/10/2010 11:12 AM EDT
Small businesses' main problem, according to the survey, is simply poor business conditions - weak sales that require cutting prices. (24% of business owners reported cutting prices, while only 12% reported raising them.) Not surprisingly, hiring intentions are very low, with only a net 2% planning to add to staff in the next three months. Lower interest rates or easier bank credit does not seem to be an issue. In fact, the survey notes, "...overall 91 percent of the owners reported all their credit needs met or they did not want to borrow, up one point. Only 4 percent reported financing as their top business problem." As such, any further moves from the Fed and/or exhortations for banks to extend loans to businesses whose main problem is weak sales may have little follow-through for meaningful improvement on the health of the small business sector.
Also from the survey, to reiterate the concern over sales, the report notes, "The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months (versus the prior three months) lost one point, falling to a net-negative 16 percent, 18 points better than June 2009 but indicative of very weak customer activity." (More business owners reported falling sales versus rising sales.) The survey also notes that expectations for weaker sales outweighs expectations for higher sales over the next three months. As such, with weak sales expectations - due in part to price cuts - small businesses would be reluctant to borrow, regardless of the availability or cost of credit. That being the case, any moves the Fed might eventually make might be to spur a higher inflation expectation and increase the supply of money, rather than simply reduce borrowing costs, as I note in today's Day Ahead. This could stem the need for price cuts and possibly increase aggregate demand. |
