Slack Demand Wipes The Smiles Off Little Guys' Faces

The nation's small-business sector is turning bearish again. Only a few months ago, the National Federation of Independent Business reported that its small-business optimism index had jumped to its highest level in three years. Now, however, the nfib reports that its quarterly index fell by nearly three points in July, suggesting that "there is little prospect of improvement for sales or hiring."

The shift in mood is apparently tied to frustration over the failure of higher sales projections to materialize. In April's quarterly survey, respondents reporting higher sales in the previous quarter outnumbered those reporting lower sales for the first time since 1990, but in the latest report, lower sales took the lead again. As a result, only 30% of small-business owners in July expected conditions to improve in the next six months, down sharply from 48% in the April survey.

All of this bodes ill for employment growth. Small businesses have accounted for the lion's share of job creation during past expansions, and a survey conducted by Dun & Bradstreet Corp. earlier this year indicated that they expected to add some 1.5 million workers this year. But the nfib's latest tally of small business hiring plans was the weakest July reading since 1982.

Meanwhile, a new Manpower Inc. employment outlook survey has found a slowdown in hiring plans for the fourth quarter among many midsize companies. And Workplace Trends, a newsletter that tracks staff cuts by major corporations, reports that the number of permanent layoffs announced through July of this year is up 2.3% over the first seven months of 1991.

If there is any good news in the latest nfib survey, it's on the inflation front. Almost as many small companies lowered prices as raised them last quarter, and a record low of 16% plan to boost prices in the months ahead. Similarly, a record low of 13% of employers plan to raise employee compensation. Says nfib economist William Dunkelberg: "The sluggish economy has resulted in the most stable inflation outlook in years."

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