Businesses cut spending as sales slip

Dwindling earnings have small businesses owners putting investments on hold.

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By Emily Maltby, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Sales have come to a standstill at many small businesses, and few owners expect improvement any time soon.

In the latest edition of the National Federation of Independent Businesses's monthly Small Business Optimism poll, the number of businesses reporting higher sales in the past three months fell to the worst reading in the survey's 35-year history. Only 18% of the small business owners surveyed saw increased sales, compared to the 40% who reported lower sales. Half of respondents said their profits were down compared to three months ago.

"Around this time every year, experts predict the holidays won't be great for retailers. This time, they'll be right," said William Dunkelberg, the NFIB's chief economist.

As a result of the poor sales and grim expectations, inventories and capital expenditures also took a hit. For the 18th consecutive month, firms that cut inventory outnumbered those that stocked back rooms. Meanwhile, capital spending plans fell to their lowest level in more than 30 years: Just 21% of reporting business owners plan to expand in the coming months.

"Business owners are not spending money on what they don't need," Dunkelberg said. "They don't need inventory because the inventory they have isn't depleting, and future prospects are low."

NFIB's monthly survey polls a portion of its members, which include small business owners throughout the U.S. This month's results are based on responses from 826 participants.

The report's only silver lining was a slowdown in layoffs. Average employment per firm still declined - 19% of respondents said their reduced their staffing recently, while 9% said they had hired new workers - but at a more gradual pace than in past months.

"Looking forward, small businesses still intend to lay off, with 4% planning to cut rather than add," Dunkelberg said. "But owners may have gotten rid of the bulk of the employees they deemed necessary to control costs. It looks like, come first quarter, we'll see a bottoming-out of actual reductions." To top of page

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