NYC Small Businesses More Optimistic than National Survey

Regina Katopodis of Artopolis in Astoria

The National Association of Independent Business (NFIB) publishes its Small Business Optimism Index monthly. When the latest report reached the wire in January it showed business was better in December, but it was not good in absolute terms. In addition to reviewing and analyzing the national report, I determined to survey small businesses in New York City to enhance our perspective of the situation within America’s largest metropolis. I was a bit surprised by some of the responses to my survey.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

The NFIB Small Business Optimism Index for December 2012 improved over November, but it did not reflect positive sentiment at the close of the year. The latest report showed the index edged up by a half of a point to a mark of 88.0 in December. At that level, the index was still at its lowest point since March of 2010. Our own survey of New York City business people turned up a notably higher level of optimism.

Obviously, uncertainty about the economy prompted by the fiscal cliff fiasco and Congressional dysfunction is what pinched the perspective of small businessmen at the close of the year. Direct tax consequences to businessmen and an indirect potential impact to the economy hinged upon developments in D.C. Bill Dunkelberg, the chief economist of the NFIB, noted that the next survey measuring January sentiment will shed light on the level of satisfaction of small businessmen with the midnight hour deal. Indeed, stocks have been on a tear since, with the SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrials (NYSE: DIA) and PowerShares QQQ (Nasdaq: QQQ) each posting mid-single digit gains year-to-date.

However, Dunkelberg warned that economic uncertainty continues to exist due to the debt ceiling and a “regulatory avalanche.” While the debt ceiling issue has been mitigated for now, budgetary battles lie ahead throughout the spring, and a potential government shutdown looms as well. If the government doesn’t put a budget together by March 1st, some $50 billion will be cut from the Pentagon defense budget through sequester. Judging by the performance of the SPDR S&P Aerospace & Defense (NYSE: XAR), there’s little fear of that actually happening. The XAR is up 5.6% year-to-date.

The NFIB subtitled its press release this month, One of the Lowest Optimism Readings in Survey History. Indeed, it reflected a significant degree of pessimism, just up slightly from November’s historic low mark. The NFIB noted that December’s reading was more indicative of a recessionary period than one of growth. The details of the data revealed that the index was hindered by deteriorated labor market component measures and the great degree of small businessmen nationally who expect operating conditions to worsen over the next six months.

The NFIB indicated that 70% of business owners surveyed characterized the current period as poor for expansion. Obviously, the issues worrying small businessmen these days are plentiful. Some of the more important issues, according to the NFIB data, are political uncertainty (25%), taxes (23%) and regulations (21%). Obviously taxes matter to everyone, but our group of respondents in New York did not really get caught up in the media hoopla around the fiscal cliff. I believe most Americans didn’t know or understand the details of what made the fiscal cliff so frightening, and I expect many were spared heart problems because of that. I believe this is also the reason why consumer sentiment showed little sign of concern up until the midnight hour, and why the Consumer Discretionary Select Sector SPDR (NYSE: XLY) and the SPDR S&P Retail (NYSE: XRT) held up so well up until the final two weeks of December.

Sales Patterns

Obviously, the macro issues discussed above are out of the control of small businessmen and are anecdotal. However, small business people are intimately tied to their sales results, and 19% of those surveyed said “poor sales” were their toughest challenge. The NFIB reported that just 18% of business owners surveyed saw higher sales over the last three months, while 30% reported lower sales results. One might say that when Apple (Nasdaq: AAPL) product sales disappoint Wall Street, we shouldn’t expect much from small businesses, but Apple’s disappointment extended into market share and margin issues as well as growth questions. In any event, the environment has not been conducive to blockbuster business, but things seem to be changing. We’ll know a little more about that this week when we may face an economic reality check.

Obviously through the seasonal period, these data are going to vary for different types of businesses. So we asked our group about the near-term trend and about sales against the prior year. Most indicated they saw just modest increases in sales growth, which matches the malaise generally experienced by business people over the last several years, given the slowly recovering economy. A representative of Mike's Diner, an iconic spot in Astoria, New York indicated, "Sales are increasing, but it has been at a snail's pace. The economy is moving in the right direction, just very slowly." Indeed, even the largest of restaurateurs have struggled of late, with McDonald’s (NYSE: MCD) facing up against the better burger threat in its U.S. market and the weak economies of Europe.

Consumer spending was reported weak by the NFIB, though the organization said auto sales were an anomaly, having recently showed some strength. Of those business owners surveyed by the NFIB, 20% expect sales improvement over the next three months, while 40% expect decline on a non-seasonally adjusted basis. Within our NYC group, the views ranged from modest growth to a bit more than that. Shelley & Nikoletta at Kentrikon & Noufaro, a wedding and other special events store in Astoria, New York, said, "We see people coming in earlier than usual this year, with orders already being booked. This bodes well for a good spring season, and has us optimistic about the year."

Hiring Patterns

Hiring patterns are of course critically important to our broader economy. We reported recently that the true unemployment rate is likely closer to 11.7% than the reported 7.8%; underemployment is more likely 17.9% instead of the reported U-6 figure at 14.4%. Small businesses employ the majority of Americans, and so their hiring plans are of critical importance to the economy.

The NFIB reported that 41% of business owners hired or attempted to hire employees over the last few months, but that includes for replacement purposes. Employees per firm only increased by a tiny 0.03 people per firm, with just 11% of the business owners saying they added an average of 2.9 workers per firm over the last few months. Some 13% of those surveyed reduced employees by an average of 1.9 workers while 76% made no change. Large and small, the employment environment remained soft through the fourth quarter of 2012. Citigroup (NYSE: C) was among notables making significant layoffs in the quarter.

What’s most important to our readers here is the forward hiring plans of businesses. The NFIB reported a disappointing bit of news on this front. On net, small businesses projected just a 1% increase in employment in the months ahead. Before seasonal adjustment, 7% of business owners plan to increase employment in the months ahead while 11% plan to reduce their workforce.

In our own survey, we discovered that some small businessmen are supporting margins on soft sales by getting more out of employees. It’s not an unfair burden being placed on busy workers, but an effort to keep wage earners busy; it’s a best use of capacity really and smart business. In some cases, rather than increasing workforce during busy seasonal periods, employers are allowing their own workforce to earn more for carrying a higher workload. This may be in compensation for fewer pay raises than during economic boom periods, but that’s just speculation on my part. Of our New York City survey group, we found very few businesses adding to their net workforce count, except for seasonal reasons.

Credit Patterns

Credit availability has improved as the economy has begun to find its way. However, the NFIB said approximately 65% of its survey respondents were disinterested in new debt funding. Only one percent of business owners said finding credit was their biggest problem. 29% said they borrow on a regular basis. The most important question for business owners is how hard is credit to come by today? A net of 9% of those regular borrowers said that loans were harder to get, not easier. Also, a net greater number of owners expect credit to be harder to come by in the future.

We asked our NYC respondents if they had borrowed recently, and if it was for business sustainment or expansion. We found that in almost every case where borrowing occurred, it was for business sustainment (but borrowing had not occurred in most cases). Some indicated that where lenders were once plentiful, sometimes they had to search a little harder and outside of their operating areas for best rates. Another of our respondents, one with a highly successful operation, indicated that offers were plentiful but always seemed to be that way.

Regarding capital spending, the NFIB confirmed what our NYC survey indicated, that most companies were operating in “maintenance mode,” or just spending enough to keep their current operations fresh. The percentage of owners planning capital outlays for the next six months was 20%.

One of our respondents noted that we should query about the usage of credit cards as an indicator of the tough economy. This respondent who wished to remain unnamed said that there was certainly an increase, whereas in the past, “people would come in with big wads of cash.” So I asked a few others qualitatively if they noted increasing credit card usage also. Regina Katopodis, Co-Owner and Manager of Artopolis, a thriving bakery and patisserie in the heart of Astoria, New York, said, "There are more, and we don't mind." The warm-hearted and lively lady continued, "We understand times are tough, and so we have always accommodated our credit card paying customers by having no minimum spend limit. Someone can buy a cup of coffee on credit, and even though it impacts our profit margins, seeing people through tough times is more important to us."

The group of small business people I interviewed was generally more positive than what the NFIB data indicates about sentiment nationally, but maybe that says something about busy New Yorkers and a certain level of optimism that exists here. The New York population center is going to be busier than other areas, because it replenishes itself. When a company goes out of business here, it tends to be replaced by a new firm with bright ideas. Likewise, vacated apartments are quickly filled by newcomers with new jobs. As a result, the big city may sink a bit in recession, but it always resurfaces before long with new vibrance. When asked about the economy and business conditions in 2013, the New York respondents were more optimistic than what was seen nationally and I think that’s why. "I feel a buzz out there. I feel the energy in the air," noted Regina of Artopolis.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Small Business Optimism Fading Into Fiscal Cliff

When small businessmen responded to the survey of the National Federation of Independent Business (NFIB) President Obama had not yet been reelected. Judging by the reaction of the stock market, I expect it’s safe to say that a good deal of businessmen were surprised by the result. So, in a few weeks, when they are asked again about how they feel, I likewise expect the slightly improved optimism that small businessmen expressed in October’s Small Business Optimism Index will disappear.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Reported Tuesday, the NFIB’s Small Business Optimism Index gained by 0.3 points, rising to a mark of 93.1. Despite the improved headline figure, concern was clearly evident in the record high percentage (23%) of business owners expressing uncertainty about business conditions six months forward. NFIB Chief Economist William Dunkelberg noted that the stalemate in Congress and the same government balance (read loggerhead) that existed before November 5th will probably paralyze business activity through the close of the year. As the fiscal cliff approaches, the same stubborn stances that led Standard & Poor’s (of McGraw-Hill (NYSE: MHP)) to downgrade the United States last year seem likely to pervade again. As a result, Dunkelberg says not to expect small businessmen to invest capital or to hire employees.

It’s my view that heading into the election, small businessmen and Americans generally did not consider fully what they might find on the other side. Now that nothing has changed with regard to the stalemate in Washington D.C., fear is the main driver of capital preservation. That means money is coming out of risky investments and being kept from new investment in assets and people.

The report that is the focus of this article seems to reflect that view. It shows October increases in inventory, and expected improvement in sales and plans to make capital outlays six months out. But the gains were minute, and given the decreased probability of satisfactory result now, businessmen are likely to lose hope.

In an earlier article, we noted that stocks should now be moved here and fro by developments in Washington D.C. The SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY) and the PowerShares QQQ (Nasdaq: QQQ) are relatively unchanged heading into the close of trading Tuesday. The SPDR S&P 600 Small Cap Index ETF (NYSE: SLY) is lower by 0.4%. Efforts to resolve the issue have only just begun, with Congress convening today for the first time since before the election. President Obama met with labor union bosses today to discuss the issue with them.

In my opinion, this should be the top priority of every government representative every single day, and resolution should be targeted for sooner rather than later. Each day that businessmen lack clarity on the tax and economic outlook is another day of economic damage done to the economy, ironically in the name of that same economy. The seriousness of this issue cannot be overstated, and so I suggest every reader who cares about his country call his Congressman and demand a compromise be worked out immediately. Let us take this opportunity to discuss and debate specific ideas for compromise.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Undermining Small Business Confidence

The National Federation of Independent Business (NFIB) produced its monthly Small Business Optimism Index Tuesday for the month of February. The measure of the small business mood gained for the sixth consecutive month, rising 0.4 points to a mark of 94.3. The NFIB warns that the reading is still low based on historical comparison, and that the rate of improvement is “glacial.” We would add that it comes just in time to be undermined by the fiscal and economic failings of Europe and the geopolitical fumbling of the world. In other words, before you get too excited about today’s slight victory, take a look at the tough schedule ahead this season.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: NYSE: SLY, NYSE: VB, NYSE: VBK, NYSE: VBR, NYSE: VIOO, Nasdaq: SCLP, NYSE: PZI and NYSE: WMCR.

Small Business

The popular spin on confidence today will be centered around the positives, including the month’s height against its 2007 grounding. That fact will overshadow the truth about its sitting lower than last February, and potentially following the trend of last year, where early gains were undermined. Last year, we saw mostly fear driven decline, though followed by some setback in economic activity. Certainly those same two factors should come into play again this year, given Europe’s self-deprecation and the battle fleet sitting offshore of the tinderbox of Iran.

Any fluffing of the data will certainly not be the fault of the NFIB’s Chief Economist, Bill Dunkelberg, the guy who probably doesn’t remember giving me my undergraduate business degree at Temple University. His view has been wisely tempered throughout the recovery, properly reflecting the cautious mood of the group of typically optimistic entrepreneurs. This month, he noted the “wildcard” that gasoline prices play in the vulnerable small business marketplace. Of course, the last few months climb in petroleum distillates would be dwarfed by what would follow any engagement of Iran in battle. Considering that all the guys opposing President Obama, save Ron Paul, already have their hands on the trigger, concern is well-placed. Yet, it might be better suited today, as wars tend to start in surprising fashion, and big guns already sit with targets set upon one-another.

You might want to note that the details of the survey are anything but enthusing. Some 22% of small business owners, the same number as was reported in January, said their biggest problem was “poor sales” in February. Take note as well that more small businesses reported declining sales than reported rising sales in February. Considering the seminal importance of the core issue, you might want to restrain your natural inclination to tout the four-tenths gain and refrain from your long bets for the long-term. That said, generally speaking over the long-term and under normal business conditions, I would expect more small businesses to fail than to survive, and the survivors to provide more than enough economic value to compensate.

Capital expenditures were up again, but remain near historical lows. What’s worse is that few business operators view today as a good time to expand. Not enough of them have real plans to expand in a significant way either. There’s a good reason for that I suppose; the number of small business owners expecting better business conditions in six months sits in negative territory. While a significant portion of that figure is certainly determined by business expectations, it’s also affected by other factors. Those cited most by small businessmen were taxes and regulation. Surprisingly, credit access was not a central issue. Washington seems to finally be taking notice, with less emphasis on Federal Reserve actions and increasingly more attention upon fair trade and business incentives. Presidential elections tend to focus the attention of public servants well…

While job creation was up in February and over the last three months, plans to increase hiring in the future fell off among the nation’s smaller businesses. A greater net of employees were added, yes, but on a greater increase in employees at a smaller number of firms than cut at a greater number of firms. That was generally consistent with the latest improving trends in the government’s employment data. However, what’s more important, and we paraphrase Eddie Murphy, is what employers have done for us lately. In this case, I mean the near future.

The latest economic data out of Europe, save perhaps today’s investor confidence improvement in Germany where the stink of the PIIGS has yet to really bite, has been generally deteriorating. Can you believe it, austerity (read starvation and blood-letting) isn’t working? The problem for us, save compassionate hearts should they still exist, is that we sell roughly 20% of our exports into Europe and that Europe buys a bunch of stuff from all over the world. The entangled global marketplace is therefore at risk of noticing European strife, and that’s before a Lehman like event could drive swift striking crisis. So the latest tiny gains in small businesses are not impressive and stand at high risk of being undermined.

The market was off to a solid start despite the mediocre small business report Tuesday, instead taking its lead from February’s Retail Sales data, which while only showing in-line numbers, still rose 0.6% ex-gasoline and autos. The SPDR Dow Jones Industrial Average ETF (NYSE: DIA), SPDR S&P 500 (NYSE: SPY) and PowerShares QQQ Trust (Nasdaq: QQQ) were each up about a half point at the start of trading on that driver. Even the SPDR S&P 600 Small Cap ETF (NYSE: SLY), which you might expect to better reflect the small business view, was up a half point. That said, I think the omen seen in the expectations of small businessmen will be considered increasingly, and seen in data to come.

This article should interest investors in small cap stock securities like the SPDR S&P 600 Small Cap ETF (NYSE: SLY), Vanguard Small Cap ETF (NYSE: VB), Vanguard Small-Cap Growth ETF (NYSE: VBK), Vanguard Small-Cap Value ETF (NYSE: VBR), Vanguard S&P Small Cap 600 Index ETF (NYSE: VIOO), Russell Small Cap Low P/E ETF (Nasdaq: SCLP), PowerShares Zacks Micro Cap ETF (NYSE: PZI) and Wilshire Micro-Cap ETF (NYSE: WMCR).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Bernanke Enabling Small Business Lending

Like cracking a safe, Ben Bernanke's Federal Reserve has been hard at work enabling small business lending. The Fed's series of small business conferences across the country have fulfilled their purpose of information gathering, and so now the central bank moves to idea generation and strategic initiative to free up capital for viable small businesses. We applaud Chairman Bernanke's efforts in this regard, and find him creating economic value in this release of capital and discovery of lending efficiencies.

"The Greek" earned clients a 23% average annual return over five years as a stock analyst on Wall Street. While writing for Wall Street Greek and others, he presciently predicted the financial crisis and housing and banking failures of the Great Recession. Visit the front pages of Wall Street Greek now to see our current coverage of business news, the global economy & financial markets, real estate, shipping, fine art & antiquities and global affairs.

(Tickers: NYSE: BAC, NYSE: JPM, NYSE: WFC, NYSE: TD, NYSE: PNC, NYSE: C, NYSE: MS, NYSE: GS, NYSE: UNB, NYSE: BK, NYSE: AA, Nasdaq: VOXX, Nasdaq: OZRK, NYSE: CSX, Nasdaq: NVLS, NYSE: PKX, Nasdaq: SHAW, OTC: WGNR.PK, NYSE: WMK, NYSE: WY, NYSE: CPB, NYSE: ABR, Nasdaq: AUXL, NYSE: CIR, NYSE: IJR, NYSE: HAO, NYSE: XGC, NYSE: TZA, NYSE: TNA, NYSE: FYX, NYSE: BRF, NYSE: PJM, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: PWT, NYSE: PWY, NYSE: PZJ, NYSE: RWJ, NYSE: DSC, NYSE: DSG, NYSE: VB, NYSE: VBK, Nasdaq: AGISX, Nasdaq: GPLBX, Nasdaq: AFCAX, Nasdaq: SMEAX, Nasdaq: GTSAX)

Bernanke Enabling Small Business Lending

Federal Reserve Chairman Bernanke today addressed a Fed sponsored forum on the topic of "Restoring the Flow of Credit to Small Businesses." On a slow starting Monday with little other news to chew on, popular press gave this address more attention than it might otherwise have received. Of course, the small business sector is deserving of this attention, given that it employs roughly one-half of all Americans and has been responsible for roughly 60% of gross job creation. Start-ups of two years or less are especially central, as this 10% portion of the workforce has created about a quarter of all jobs over the past 20 years.

Wall Street Greek has addressed this critical problem often, noting mostly that the President's efforts to drive job growth through tax incentive is futile. We have mentioned on more than one occasion that jobs will follow business, not vice-versa. While tax incentives are nice, the hiring of employees remains a cost burden until commensurate revenue exists. That said, the small business sector has its own wonderful driver that is embedded within the characteristics of the sector itself. Our article authored this past May, entitled, "Small Business: The Little Engine that Could," discussed the intrinsic driver behind small business initiation and initiative. It's the small businessman himself, the keeper of the American dream.

The Fed's latest get-together marked a sort of culmination of a series of 40 such meetings across the country, where small business players including entrepreneurs, policy makers, lenders, economists, Fed Board members and other groups discussed the current state of affairs. The Fed's mission was to gather information in order to see with full scope the small business sector; to understand where flaws exist, and in the end, to better enable viable small businesses to receive funding capital. Today's meeting in Washington marked a turning point, where these conferences move from the phase of information gathering to idea generation; from here, decision makers will move toward effective policy creation and strategic initiative engineering toward the end of small business funding and job creation.

The initiative came together for two reasons, because small businesses are not hiring and because they are reporting ongoing difficulties in gaining access to credit, based on survey by the National Federation of Independent Business (NFIB). Bernanke noted that one measure of banks' lending to small businesses reported a drop in aggregate levels from $710 billion in Q2 2008, to below $670 billion in the first quarter of 2010. Bernanke importantly asked, "An important but difficult-to-answer question is, How much of this reduction has been driven by weaker demand for loans from small businesses, how much by a deterioration in the financial condition of small businesses during the economic downturn, and how much by restricted credit availability? No doubt all three factors have played a role.5 Clearly, though, to support the recovery, we need to find ways to ensure that creditworthy borrowers have access to needed loans."

Bernanke boasted of the TALF impact on small business lending, attributing 850K loans to small businesses to the support of the program. He also reminded of the strengthening of the US banking system, and broad measures like the stress tests that allowed banks to build a base of reserves adequate to allow confidence restored and new lending initiated. In addressing bank concerns about bank examiner inconsistencies and difficulties, the Fed has acted to reprogram its inspectors and has retrained them, while continuing to seek feedback from banks. Bernanke states that while certain lending standards must be maintained, banks should still do all they can to provide funds to credit worthy borrowers, and they should be allowed to.

We have discerned an important shift in the lending mindset based on changes in the economic environment. Lenders are focused on collateral value due to a fear-based concern tied to an increase in loan defaults and borrower failures. In many instances where cash flow generation remains solid, small business enterprises are still finding capital hard to come by due to decreased collateral values. This leads us to wonder if the only thing that can fix the economy is the economy. Perhaps the only thing that can loosen lending is decreased default rates.

In Conclusion

Whether a special problem exists or not, this initiative undertaken by Bernanke's Fed is important. The Fed has undertaken a wise consulting enterprise that is sure to unlock value as it improves the environment around small business lending. Efficiencies are being found and freed, and so Ben Bernanke's Fed is therefore creating economic value.



Today's corporate earnings reporters include Alcoa (NYSE: AA), Audiovox (Nasdaq: VOXX), Bank of the Ozarks (Nasdaq: OZRK), CSX Corp. (NYSE: CSX), Novellus Systems (Nasdaq: NVLS), POSCO (NYSE: PKX), Shaw Group (Nasdaq: SHAW), Wegener (OTC: WGNR.PK), Weis Markets (NYSE: WMK). Weyerhaeuser (NYSE: WY) held a special dividend conference call. Campbell Soup (NYSE: CPB) is holding its analysts meeting. Arbor Reality Trust (NYSE: ABR) is hosting a call to discuss the debt retirement completion with Wachovia. Auxilium Pharmaceuticals (Nasdaq: AUXL) is hosting a call its XIAFLEX launch and development. CIRCOR Int'l (NYSE: CIR) is hosting a call for its Leslie Controls subsidiary, as it files a pre-negotiated plan to permanently resolve its asbestos liability. Article also interests NYSE: BAC, NYSE: JPM, NYSE: WFC, NYSE: GS, NYSE: MS, NYSE: C, NYSE: PNC, NYSE: TD, NYSE: UNB, NYSE: BK.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.