Weekly Industry Crib Sheet: Small Business Optimism Up Slightly in July

August 19, 2013

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The National Federation of Independent Business’s (NFIB) latest small business optimism index improved slightly from 93.5 in June to 94.1 in July, reflecting an increasing but still weak trend of owner confidence, with few respondents who believe that now is a good time to expand business.

While NFIB small business owners who were surveyed reported higher sales in the past three months, just 7 percent expect that sales will increase in the near future.  Meanwhile, job creation and hard-to-fill job openings were other challenges for owners, with respondents reporting that, although they have stopped reducing employment, they have not continued hiring. The percentage of owners reporting that they could not fill job openings in July rose 1 point to 20 percent, the highest reading since February -- perhaps a positive indicator for job seekers.

The findings also indicate that an increasing number of small-business owners are considering expanding their business and staff; however, this proportion remains low, at just 9 percent. Additionally, a small percentage (5 percent) of NFIB members indicated that their credit needs were not met last month, a vast difference from the 35 percent of small business owners said they were unable to attain financing reported by the most recent National Small Business Association (NSBA) survey. As noted by The Business Journals, this inconsistency may reflect the fact that NFIB members simply were not in need of a loan during that time period.

NFIB chief economist Bill Dunkelberg expressed cautious optimism on the NFIB findings. “Let’s not get too excited: The level is still well below the average reading of 100 in the prior 35 years and still half a point below the December 2007 reading,” he said. “Unfortunately, nothing is being done to allay the most pressing concerns identified by job creators -- dealing with rising health insurance costs, regulations, tax complexity, energy costs, and general economic uncertainty.”

Industrial Production Slips in July

U.S. manufacturing production dipped slightly in July, dampening industry optimism after strong performances earlier in the summer.

According to the Industrial Production and Capacity Utilization report from the Federal Reserve, U.S. manufacturing production fell 0.1 percent to 95.4 percent of its 2007 average, the first decline since March and April figures. The Federal Reserve attributed the fall in output to a 1.7 percent decline in automobile production, which will reverse in the coming months as automakers begin producing new model year vehicles. Without the 1.7 percent drop, manufacturing output would have remained unchanged in July.

The disappointing July figure dissipated the optimism fostered by positive figures in May and June, as well as the Aug. 1 release of the Institute for Supply Management purchasing managers’ index (PMI), which jumped to a reading of 55.4, according to IndustryWeek.

“While much of the conversation in the past couple weeks has been about improvements in production data in the summer months, it is clear that we are still not where we would like to be with this data,” wrote Chad Moutray, chief economist for the National Association of Manufacturing (NAM), as quoted by IndustryWeek. “Over the course of the past 12 months, industrial production has risen just 1.4 percent, a deceleration from the 2.0 percent pace suggested in the last report.”

Producer Price Index Mostly Unchanged in July

U.S. wholesale prices showed little change in July, as energy prices fell, pharmaceutical prices rose, and food prices remained unchanged. The lack of movement means inflation was stagnant last month.

U.S. Dept. of Labor reported Wednesday that the core producer-price index (PPI), which excludes food and energy, increased 0.1 percent, held down by weak international markets.

According to MarketWatch, economists had expected the overall PPI to rise 0.3 percent in July, and for the core to increase 0.2 percent. But lower costs for raw materials and poor demand thwarted price increases in most markets.

Wholesale energy prices declined 0.2 percent, largely due to falling costs for natural gas, which declined 3.9 percent. Crude energy materials saw a 4 percent gain, bolstered by rising oil prices.

Automotive prices fell 1.1 percent last month, the largest decline since 2009. It’s common for carmakers to lower prices on existing model-year cars this time of year to make inventory room for the next model-year vehicles. The Wall Street Journal also speculates that rebates and other financial incentives, as well as lower raw materials prices likely contributed to the overall decline.

Wholesale prices have increased an unadjusted 2.1 over the past 12 months, while core producer prices have gained 1.2 percent.

Conveyor Orders Up 7.2 Percent

The Conveyor Equipment Manufacturers Association (CEMA) reported last week that June 2013 booked orders rose 7.2 percent over May 2013. Compared to the previous year, however, booked orders fell 14 percent.

Orders were up 9.2 percent for bulk handling equipment and up 5.5 percent for unit handling equipment over the previous month.

Shipments dropped by 10.8 percent over June 2012 sales, but rose 1.3 percent over May 2013. For bulk handling equipment, shipments increased 4.5 percent, while unit handling equipment fell 0.5 percent when compared to May.

Jobless Claims Fall Again to New Record Low

The number of Americans seeking unemployment benefits dropped again to the lowest levels since 2007, according to data from the U.S. Labor Department.

Jobless claims decreased by 15,000 to 320,000 in the week ending Aug. 10. The four-week moving average, which smoothes week-to-week volatility, fell by 4,000 to 332,000, another record low.

While many economists were quick to praise the figures, there is reason for caution. For starters, the summer months are often volatile in terms of hiring and firing, given that automakers and other manufacturers typically shutdown to retool for new model-year products. In addition, employers added only 162,000 jobs in July.

But the most recent reason for pause comes from the Bureau for Labor Statistics (BLS). Average hourly earnings fell 0.1 percent from July 2012 to July 2013, a sign that workers are earning less, even as inflation begins to pick up.

This trouble could be further aggravated should the Federal Reserve decide to begin tapering its $85-million-per-month bond-buying stimulus. This would cause interest rates to jump, and when combined with rising costs of living and decreasing wages, could potentially stall out hopes of a real recovery.

 

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