The following is taken from the September 2009 issue of NFIB Small Business Economic Trends, a monthly report based on surveys of companies that belong to the National Federation of Independent Business (NFIB). This material is a copyright of the NFIB Research Foundation (© NFIB Research Foundation). The opinions expressed in this excerpt are not necessarily those of A Printing Office or of WhatTheyThink. The complete report may be downloaded here—Ed.) It looks like the third quarter will turn out a bit better than we predicted last year. At the time, our forecast was quite optimistic. Most everyone seems to be revising up, even past the NFIB forecast. But the NFIB data confirm that the fundamentals are still weak. “Cutting" is starting to diminish, but "adding" has not picked up in jobs, inventories or capital spending. The small business sector has taken a real beating. Owners have reduced employment and cut inventories at a record pace, and capital spending (plans and actual) reached 35 year lows this year. Clawing their way back requires some cooperation from consumers, the source of sales for most small firms, and they are not in a spending mood. For many consumers, debt burdens have restrained spending. For higher income consumers, psychology is playing a negative role—wealth losses have shocked them into reduced spending. Capital expenditures are at record low levels. So are plans to make outlays in the next three months. Plans to invest in inventories are at the third lowest level in survey history, but have been at that level for a long period of time. Inventory reductions have been running at new record levels for a year. Reports of sales declines are running at record levels (price cuts part of the cause, lower real unit sales as well) and this has produced reports of profit declines at record rates. It is looking like the worst period in survey history, worse in many ways that the 1980-82 period which had a "relief growth rally" in the middle of its 22 month span. Political leadership has also had a negative impact on attitudes. For years, owners have expressed a vote of "no confidence" in the economic policies of Congress. From September 2008 through June 2009, leadership has been unconvincing, appeared confused, and unable to act in a way that engendered confidence from the private sector. The Stimulus Package contained very little current stimulus and Congress has continued to pursue major legislative changes that promise to be less than business or consumer friendly. Taxes, Taxes, Taxes, Regulations, Regulations, Regulations. Deficits, larger and deeper. Depressing. With all that, the private sector is slowly climbing its way back, pent up demand is huge (even without the credit driven levels of spending from the expansion). Consumers are slowly rebuilding their financial foundations and spending will recover, albeit slowly. In the long haul, the relationship between consumption and spending is fairly stable. We used credit to "over-consume," now we will repay the debt and "under-consume" for a spell. The attempts by Congress to "steam roll" the private sector are being repelled by ordinary folk and politicians who have faith in the private sector, not government. This is contributing to an improvement in expectations for economic performance. Real sales volumes and business conditions are expected to improve, let's hope that owners follow up with an increase in their spending and hiring.