April 12 (Bloomberg) -- Confidence among U.S. small companies fell to a five-month low in March, damped by a deteriorating outlook for sales, profits and the economy, a private survey found.
The National Federation of Independent Business’s optimism index decreased to 91.9, the Washington-based group said today in a statement. February’s reading of 94.5 was the highest since the recession began in December 2007.
Worsening expectations for sales and business prospects underscore the damage done by mounting costs for oil and raw materials. The report also showed the proportion of small-business owners who reported raising selling prices jumped to the highest level since October 2008, which may fuel debate at the Federal Reserve on the outlook for inflation.
“A major force behind the price hikes is the elimination of inventory excesses which appeared in 2008,” William Dunkelberg, the group’s chief economist, said in a statement. “The ‘fire sale’ is over and profits are badly in need of some price support.”
A net 9 percent of small businesses said they raised the average selling price in March, up from a net 5 percent in February. The increases began before gains in energy prices became an issue, Dunkelberg said in the statement, signaling “these problems for prices lie ahead.”
Those planning to increase prices climbed to a net 24 percent of owners, the highest reading in 30 months, according to the report.
The results may concern some Fed officials. Fed Chairman Ben S. Bernanke, Vice Chairman Janet Yellen and Federal Reserve Bank of New York President William C. Dudley are among those saying the surge in commodity prices will probably have only a temporary impact.
Federal Reserve Bank of Philadelphia President Charles Plosser and Richard Fisher, his counterpart at the Federal Reserve Bank of Dallas, have been among those advocating that the central bank consider removing monetary stimulus before inflation flares.
The NBIB’s survey’s net figures are calculated by subtracting the percent of business owners giving a negative answer from those with a positive response, and adjusting the results for seasonal variations.
A gauge of expectations for better business conditions six months from now dropped 14 points to a net minus 5 percent from 9 percent in February. A gauge of whether small firms think this is a good time to expand fell 2 points to a net 5 percent.
The net share of owners projecting higher sales, adjusted for inflation, fell 8 points to 6 percent. A measure of earnings trends decreased by 5 points to a net minus 32 percent.
“It is not clear why owners expect a deterioration in the economy over the next six months,” Dunkelberg said in the report. Economic growth and employment “have not been spectacular, but have maintained positive momentum,” he said.
A measure of respondents planning to hire over the next three months fell 3 points to a net 2 percent, while job openings hard to fill held at a net 15 percent. Plans for capital investment rose by 2 points to a net 24 percent.
The NFIB report was based on 811 small-business owner respondents through March 31. Small businesses represent more than 99 percent of all U.S. employers and have created 65 percent of new jobs in the past 17 years, according to the U.S. Small Business Administration. A small business is defined as an independent enterprise employing up to 500 people.
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