The Little Guys Spy A Slowdown

Spending and hiring plans are down

Recent reports of sluggish hiring gains, flat vehicle sales, and weak consumer spending all suggest that the long-awaited economic slowdown is taking shape. If you need more evidence, cast an eye at the nation's bellwether small-business sector. Based on the National Federation of Independent Business' monthly survey of its members, the organization's index of small-business optimism fell to 97.9 in June--its lowest level since the fall of 1993.

"Uncertainty about the economic outlook is evidently inspiring many small enterprises to temper their hiring and spending plans," reports NFIB economist William C. Dunkelberg. Looking ahead, only 8% of those surveyed in June expect the economy to strengthen over the next six months, compared with the 25% who expect it to weaken.

That doesn't mean that demand is actually contracting, however. Reports of rising sales weakened a bit in June, but remained relatively solid. A net 17% of owners still expect real sales gains over the next half-year.

Labor markets, too, show little sign of slacking off. For the third month in a row, a record 34% of small businesses said they had "hard-to-fill" job openings, and 20% cited finding qualified, skilled workers as their most important problem. Although actual employment growth in the second quarter was strong, only 12% of companies plan to expand payrolls in the next six months, down from 22% last fall.

Meanwhile, wage costs are accelerating. A near-record 32% of NFIB members reported that they boosted labor compensation in the second quarter, and 20% say they intend to do so in the months ahead. Still, only 8% deem rising labor costs their most important problem.

The investment picture is also mixed. Actual outlays on plant and/or equipment have been running at quite high levels for some time, but that is likely to change. Last month, only 30% of members said they intended to make capital outlays in th servers will have to accelerate in power at a rate at least 100 times faster than Moore's Law, which holds that chips double in speed every 18 months, says Sun chief technologist Greg Popadopolous. Sun is working on two tracks--massive single machines with millions of microprocessors, as well as distributed computing schemes so the computing load can be divvied up between smaller machines linked by high-speed networks.

Sun also is betting it can leapfrog the competition by giving customers the essential soct profits in the face of rising labor costs and slowing sales gains. Such strategies point to a soft landing, but with price pressures growing, there could be some nasty bumps on the way down.

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