The National Federation of Independent Business released is monthly Small Business Economic Trends this morning, with Small Business Optimism rising from 92.0 in November to 93.8 in December. It was the fifth consecutive monthly gain, up from 88.1 in August.

Along with the gain in confidence, the net percentage of respondents saying that the next three months are a “good time to expand” has increased to 10, its highest level since before the recession. Likewise, small business owners are also more optimistic about future sales, employment and capital spending.

Nonetheless, it is important to note that small businesses remain anxious despite these improvements. Traditionally, small businesses are experiencing strong growth once the Optimism Index exceeds 100 – a threshold that it has not surpassed since 2006. Moreover, of those suggesting that now is not a good time for expansion, poor economic conditions and an unsettling political climate are cited. The single most important problem continues to be “poor sales” followed by taxes and government regulations.

Chad Moutray is chief economist, National Association of Manufacturers.

Small businesses became more pessimistic in August, according to the National Federation of Independent Business (NFIB). Their Small Business Optimism Index fell from 94.1 in January and 89.9 in July to 88.1 in August. This nearly matches where the index was one year ago.

Economic concerns were behind this decline, with 53 percent saying that the economy was not good and 13 percent noting economic uncertainty. The single most important problem continues to be poor sales, as cited by 25 percent of respondents. On the other hand, if one were to add together regulatory and tax concerns, this would top sales at 37 percent.

Small business owners on average expect sales to fall in the coming months. Twelve percent more of these owners see their sales falling than those who expect increases in the next three months. Likewise, more small businesses shrank employment than expanded it over the last three months. Looking ahead, a net 5 percent expect to hire, an improvement from July (which was a net +2 percent) but still not suggesting fast growth.

Meanwhile, the National Association of Business Economics (NABE) reported in its quarterly Outlook Survey that real GDP is expected to grow 1.7 percent this year, down from the earlier estimate of 2.8 percent made in May. Similarly, business economists foresee 2.3 percent growth in 2012 instead of 3.2 percent.

The reasons for the downgrade are multifaceted. First, the Bureau of Economic Analysis has reported much slower growth in the first half of this year than many economists expected (0.4 percent in the first quarter and 1 percent in the second). Second, businesses have faced a number of significant headwinds this year, from supply chain disruptions to rising raw material prices to falling business and consumer confidence. Growth in spending has been flat as a result. (continue reading…)

Despite some progress in overall economic conditions since the recess, small business owners remain anxious about the economy. These concerns have had real impacts on the smaller firms’ willingness to invest in their businesses, hire additional workers, or seek additional capital.

Given that smaller businesses have traditionally led economic growth coming out of a recession, the fact that this is not happening this time around is hampering employment and economic growth. Two recent surveys have highlighted this fact.

First, the U.S. Chamber of Commerce conducted it’s annual Small Business Outlook Survey. Nearly half of small businesses, defined as those with under $25 million in annual sales, felt that economic uncertainty was their top concern. Other top challenges included fiscal efforts to address the federal deficit and debt, government regulations and the Health Care law.

In addition, 64 percent intended to keep the same number of employees over the next year, with 19 percent planning additional hiring. Interestingly, despite negative views on the national economy, almost two-third report that their own businesses are “on the right track.”

Earlier today, the National Federation of Independent Business released its Small Business Optimism Index, which fell from 90.9 in May to 90.8 in June. While virtually the same as the previous month, the index reflects continued wariness on the part of small business owners. Over half of the respondents who suggested that the next six months were not a good time to expand, said that economic conditions were the reason. The top concern remains “poor sales.”

Chad Moutray is chief economist, National Association of Manufacturers.

The Census Bureau stated that retail sales fell 0.2 percent in May, its first decline since June 2010. The largest decliner was motor vehicle and parts sales, which dropped 2.9 percent from the previous month. Excluding autos, retail sales rose 0.3 percent. Even with these declines, however, it is important to note that retail sales were up 7.7 percent since May 2010, with auto sales up 5.4 percent over the past year.

Consumers continue to be pinched by rising prices. (Note that the consumer price index data for May will be released tomorrow.)  As a result, the weakness in spending went beyond automobiles. Other sectors with declining sales in May were electronics and appliances (down 1.3 percent), furniture and home furnishings (down 0.7 percent), food and beverages (down 0.5 percent), sporting goods and hobbies (down 0.4 percent), and general merchandisers (down 0.1 percent).

Bucking this trend, though, was strong growth in sales from nonstore retailers and building supply stores (both up 1.2 percent). Reflecting upward movement in energy prices, gasoline stations experienced a 0.3 percent increase in sales in May and a 22.3 percent rise year-over-year.

A second report released today shows that small businesses remain pessimistic about the economy – definitely not a good sign. The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index fell from 91.2 in April to 90.9 in May.

This was the third consecutive month of declines, with the index standing at 94.5 in February. Figures under 100 usually indicate weakness in the small business sector, and respondents appear to be hesitant to expand their businesses, hire new workers, and invest in new capital. The top concern remains poor sales, but perhaps reflecting inflationary pressures, 31 percent of respondents indicated the need to raise prices.

Overall, these two economic indicators reinforce the notion that the economy has weakened somewhat in the second quarter of 2011. Rising energy, food, and raw material prices continue to take their toll, but there are also other headwinds, both temporary and otherwise, which are serving as a drag on the economy. The NFIB survey is more pessimistic than other surveys, including ours, and there I remain cautiously optimistic about manufacturing output in the second half of 2011. 

Yet, these numbers are enough to remind us that economic growth remains tenuous, and for the manufacturing sector to continue to grow, we need to have the right economic and policy environment.

Chad Moutray is chief economist, National Association of Manufacturers.

Wisconsin Gov. Scott Walker, who took office just this month, has an early victory in his effort to improve the state’s business climate, the major tort reform package introduced in the special session of the Legislature he called to pass jobs and economic growth bills. He signed the bill, SB1, in the governor’s conference room on Thursday.

From The Milwaukee Journal-Sentinel story, “Walker signs bill limiting court awards in injury cases“:

“This is a balance we are trying to create, to make sure certainly those who do damage and do harm are rightfully going to be penalized, even when this act becomes law,” Walker said. “But for those who have been . . .  threatened with frivolous lawsuits, particularly for small business, they’re going to receive relief today because . . .  we move forward in cutting back on frivolous lawsuits and out-of-control lawsuit abuse in the state of Wisconsin.”

Credit also goes to the state Senate and Assembly, which passed the legislation.

Wisconsin Manufacturers and Commerce, an effective and energetic supporter of the legislation hailed the bill’s signing. “These reforms will add certainty, fairness and predictability to our legal system,” said James A. Buchen, WMC vice president of government relations. The key provisions, according to WMC: (continue reading…)

A news roundup, in other words…

Rep. Tom Cole (R-OK), Edmond Sun, “Obama’s policies stifle economic growth“: “EDMOND — In less than five weeks, tax hikes will go into effect for virtually all tax brackets unless Congress takes action. Despite public and bipartisan support for maintaining the current tax rates, President Obama and Democratic leaders in Congress have repeatedly refused to bring the issue to a vote. President Obama insists that his plan to raise taxes on the highest tax brackets will not affect job creators, but the facts indicate otherwise.” The Congressman cites the recent WSJ op-ed by John Engler and Jerry Howard, “Tax Hikes and the Small Business Job Machine.” Thank you.

Bloomberg, “Return of Estate Tax Looms as Final Impediment to Extending Bush Tax Cuts“: “In the past year trade groups such as the National Federation of Independent Business and the National Association of Manufacturers, alarmed by the possibility of a 55 percent rate in 2011, have pivoted toward urging lawmakers to adopt the approach favored by Kyl and Lincoln.” That’s an accurate assessment.

The Senate voted 61-35 on Tuesday for a motion by Sen. Mike Johanns (R-NE) to suspend the expansions of IRS 1099 reporting requirements imposed by the new health care law, but he needed 67 votes for the measure to proceed. Bloomberg reports the NAM’s opposition in its coverage, “Repeal of Health Law’s ‘Onerous’ Business-Expenses Rule Fails“: “The U.S. Chamber of Commerce and the National Association of Manufacturers, both based in Washington, and the Nashville- based National Federation of Independent Business supported repeal of the 1099 rule, saying the requirement would be cumbersome for business owners.” Cumbersome, yes. Stupidly, insanely burdensome and costly, as well.

A related motion by Sen. Max Baucus (D-MT) to get rid of the 1099 reporting requirement failed 44-53.

Investor’s Business Daily, “As EPA Goes Green, Businesses See Red From Lack Of Guidance“: “Big business is bracing for a series of Environmental Protection Agency regulations set to begin in January. The problem is, it doesn’t really know what those regulations are going to be. Neither does the EPA, which has essentially punted that responsibility down to the states.” Meanwhile, Administrator Jackson celebrates the 40th anniversary of the EPA. We suggest the slogan, “Regulatory Excess since the Nixon Era!”

As Singapore Goes, So Goes Spain. Isn’t that a strange concept? The Daily Record of Scotland reports, “Spanish manufacturers ordered to make chewing gum ‘less sticky’“: “Manufacturers have been ordered to change their formula so the gum is easier to clean from pavements. The problem was considered so serious that PM Jose Luis Rodriguez Zapatero held a cabinet meeting to tackle the issue.” We await the bureaucratic battle here in the United States to address the problems: FDA or EPA? What with the streets and nuisance and all, it might make Transportation Secretary LaHood’s priority list, too. Bicyclists hate getting gum on their gumwall tires.

The National Association of Manufacturers today began TV and radio advertising in nine states to oppose tax increases on energy production, which some members of Congress want to enact when they reconvene in Washington next week.

In a statement, NAM President and CEO John Engler said: “Our message to Congress is very clear. At a time when unemployment remains over 9 percent, costly energy taxes will make our nation’s economic situation worse by raising costs for businesses and consumers and hurting businesses’ ability to compete in a global marketplace. We are encouraging manufacturers, small businesses and the public to tell Congress to say yes to jobs and no to higher energy taxes.”

The National Federation of Independent Business is joining the NAM in sponsoring the ads. Thank you, NFIB!

Television and radio spots will run in Arkansas, Colorado, Indiana, Maine, Missouri, Nevada, Ohio, Virginia and West Virginia. The spots urge Senators in the states to, “Say yes to jobs, and no to higher energy taxes.”

The Wall Street Journal’s John D. MacKinnon has blogged on the new campaign, “Business Groups Target Higher Energy Taxes.”

The Hill today surveys business trade associations and finds, “Businesses lackluster in support of jobs bill.” Excerpt:

NAM spokeswoman Laura Narvaiz said the group supports the additional infrastructure spending in the jobs package as a way to create jobs and growth. But she said the jobs bill needed to be more “comprehensive.”

“We remain concerned … that the House jobs bill doesn’t go far enough to ensure long-term growth and create lasting high-paying jobs,” Narvaiz said.

The U.S. Chamber opposes the reallocation of remaining TARP funds, while the NFIB objects to the lack of a payroll tax holiday.

Below we note criticism of the White House Forum on Jobs and Economic Growth from two prominent Republicans, former Speaker of the House Newt Gingrich and House Minority Leader John Boehner (R-OH).

Gingrich and Boehner raise a criticism we’ve seen elsewhere, that the President excluded important employer groups like the Chamber of Commerce, National Federation of Independent Business, and the National Association of Manufacturing.

Eh. We’re not inclined to complain. As these posts demonstrate, there were plenty of manufacturers among the 130 attendees and they provided good input. The White House has said in the past it wants to hear from the actual company leaders, the employers in the trenches, and fair enough.

But …

If that’s the theory, then shouldn’t organized labor’s representatives have been the heads of local unions, the men and women dealing with job loss and creation in their home communities? It’s not as if Andy Stern doesn’t have enough opportunity already to talk to White House officials.

Instead …

• Mark Ayers, Building and Construction Trades Department, AFL-CIO
• Larry Cohen, Communications Workers of America
• Edward Wytkind, Transportation Trades Department, AFL-CIO
• Ed Hill, International Brotherhood of Electrical Workers
• William Hite, United Association of Plumbers and Pipefitters
• Leo Gerard, United Steel Workers
• Terry O’Sullivan, Laborers International Union of North America
• James Hoffa, International Brotherhood of Teamsters
• Anna Burger, Change To Win
• Richard Trumka, AFL-CIO
• John Wilhelm, Unite Here
• Joe Hansen, United Food and Commercial Workers
• Andy Stern, Service Employees International Union
• Randi Weingarten, American Federation of Teachers

The National Association of Manufacturers yesterday sent a “Key Vote” letter to the House urging a no vote on H.R. 4154, which would make permanent the current estate tax rate of 45 percent with a $3.5 million exemption. (See yesterday’s blog post, “NAM Opposes House Bill to Set Permanent High Rate for Death Tax.”

Fox News anticipates today’s House vote in the report, “Lawmakers Race to Extend Reduced Tax on Large Estates.” Supporters of the bill or an even higher tax rate emphasize the relatively small number of estates affected by the tax, about a quarter of 1 percent of all estates. We doubt those percentages comfort the many small, family-owned manufacturing companies affected by the tax: “Yeah, tough luck. You just happen to be one of the few punished for your success.”

In addition, as the NAM letter argues, the estate tax diverts investment from more productive uses:

For small and medium-sized manufacturers, owners and families, the estate tax is more than a one-time tax. In a recent survey of the NAM’s small and medium-sized manufacturers, respondents said that, on average, they spend $94,000 annually on fees and estate-planning costs in preparation for their estate tax bill. This is money that could have been used to grow businesses and add jobs.

More …

• Dow-Jones reports, “US Business Groups Split Over Estate-Tax Efforts.” True enough, but the differences are based mostly on tactical considerations as groups weigh several questions: What is realistically achievable in the current Congress, and would it improve the chances of more relief to let current law stand, leading to the tax’s full elimination in 2010 followed by its return in full force of 55 percent in 2011.
• NACS (the convenience store association), “NACS Urges Estate Tax Relief With Compromise Bill“: “NACS supports estate tax repeal. However, it does not support H.R. 4154, the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009, because it quite simply is an incomplete solution to adequately removing this tax burden on family-owned and -operated convenience and petroleum retail operations. …Instead, NACS is asking members to consider an alternative measure, H.R. 3905, which would better protect small businesses by providing an exemption level of $5 million per person and a rate of 35 percent.”
•  National Cattlemen’s Beef Association, “NCBA Opposes House Proposal To Extend Current Estate Tax Law“: “The Pomeroy bill is a disservice to America’s family farmers and other small businesses,” said NCBA President Gary Voogt. “By keeping a flawed law in place, Congress will simply extend our problems with the current system into the future.”The Washington Post editorial page dismisses compromise legislation as “a travesty.” That’s overblown and offensive. Legislators who believe business owners and farmers should not be punished for successful lives are not committing “a travesty.” They’re supporting investment, jobs and free enterprise.
•  National Federal of Independent Business letter calling H.R. 4154 an “incomplete solution” and expressing support for H.R. 3905.