The National Federation of Independent Business’s Small-Business Optimism Index dropped one tenth of a point (0.1) in June, settling at 90.8.
That was an unsurprising reading, basically unchanged from the previous month and solidly in recession territory. While some indicators rose slightly—including expected capital outlays—pessimism about future business conditions and expected real sales gains tugged the Index down, causing a small but disappointing drop in the Index for the fourth consecutive month. Although June marked the second year anniversary of the recovery, it appeared there was little happening to make small business owners optimistic.
“Small-business owners are registering a vote of ‘no confidence’ in the federal government,” said NFIB chief economist Bill Dunkelberg. “Between the deluge of new regulations and a Washington policy agenda that is largely ignorant of Main Street needs, stubbornly low consumer spending, and grave concern among small firms about the federal budget, there is not much to be optimistic about as a small-business owner. Who can blame the prevalence of pessimism when administration officials are telling Congress that small businesses need to pay more in taxes to support government spending programs?”
Earnings trends for small businesses remained distressingly negative in June, particularly given that the recovery is now beginning its third year. According to today’s report, 69 percent of the owners view the current period as a poor time to expand and 75 percent of those blame the weak economy for their outlook, while 10 percent cite political uncertainty.
While June’s employment growth was weak, 15 percent (seasonally adjusted) of small firms reported unfilled job openings, a 3 point increase from May and an indication that the unemployment rate will ease back below 9 percent in the late summer or early fall.
Over the next three months, 11 percent plan to increase employment (down 2 points), and 7 percent plan to reduce their workforce (down 1 point), yielding a seasonally adjusted 3 percent of owners planning to create new jobs, and a 4 point improvement. However, these statistics are still at recession levels and any real employment gains are still to be realized.
Inflation has slowed slightly, due in part to a leveling of gas prices. However, the fact that small firms are raising prices at all provides a glimmer of hope in an otherwise lackluster economic report. Twenty-five percent of the NFIB owners reported raising their average selling prices in the past three months, compared to 16 percent who reported price reductions. Seasonally adjusted, the net percent raising selling prices was 10 percent, down 5 points from May, but this registered as the third consecutive double-digit month and is 23 points higher than a year ago.
The sales outlook for small firms continues to look grim as expectations have declined for 4 months in a row and “poor sales” continues to be the #1 problem for owners in operating their business.
The net proportion of owners expecting higher real sales fell 3 points to a net 0 percent of all owners (seasonally adjusted), 13 points below January’s reading. The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past 3 months improved 2 percentage points, rising to a net negative 7 percent, more firms with sales trending down than up.
Over the past six months, 50 percent of all firms reported making capital expenditures, an historically low average. Of those making expenditures in June, 32 percent reported spending on new equipment (down 4 points), 19 percent acquired vehicles (up 3 points), and 11 percent improved or expanded facilities (up 2 points). Five percent acquired new buildings or land for expansion (up 1 point) and 10 percent spent money for new fixtures and furniture (down 2 points). There was a slight increase in firms planning capital outlays in the next 3 to 6 months; this indicator rose 1 point to 21 percent, although still a recession level reading. Money is available, but most owners are not interested in a loan to finance the purchase of equipment they don’t need.
Access to credit remains a limited problem as it continues to affect a small percentage of owners. Three percent of owners reported financing as their #1 business problem and 91 percent reported that all their credit needs were met or that they were not interested in borrowing. Nine percent reported that not all of their credit needs were satisfied, 53 percent said they did not want a loan and 13 percent did not answer the question and might be presumed to be uninterested in borrowing as well. So, for the overwhelming majority of owners, “credit supply” is not a problem. Twenty-nine percent of all owners reported borrowing on a regular basis, unchanged from May and only 1 point above the record low.
The report is based on the responses of 766 randomly sampled small businesses in NFIB’s membership, surveyed throughout the month of June. The complete study is available at
