The National Federation of Independent Business Index of Small Business Optimism lost 0.9 points in July and reached 88.1 following a sharp decline in June.

The index has been below 93 every month since January 2008 (31 months), and below 90 for 24 of those months, all readings typical of a weak or recession-mired economy. Ninety percent of the decline this month resulted from deterioration in the outlook for business conditions in the next six months, based on a survey of 2,029 small business owners.

“The recovery in optimism that we are currently experiencing is very weak compared to recoveries after the 1982 and 1975 recessions,” said NFIB chief economist Bill Dunkelberg. “The small business sector is not on a sustained positive trajectory, and with this half of the private sector missing in action, the economy’s poor growth performance is not surprising.”

Average employment growth per firm turned negative in April of 2007 and remained negative for 11 of the 13 following quarterly (first month in each quarter) readings, ending with a negative 0.15 in July (seasonally adjusted). July actually is an improvement from recent months where average declines of workers per firm were negative 0.48 in May and negative 0.28 in June.

In July, 10 percent (seasonally adjusted) reported unfilled job openings, up one point from June but historically very weak. Over the next three months, 9 percent plan to increase employment (down one point), and 10 percent plan to reduce their workforce (up two points), yielding a seasonally adjusted net 2 percent of owners planning to create new jobs, up one point from June and positive for the third time in 22 months.

The frequency of reported capital outlays over the past six months fell one point to 45 percent of all firms, one point above the 35-year record low reached most recently in December 2009. The percent of owners planning to make capital expenditures over the next few months fell one point to 18 percent, two points above the 35-year record low.

Five percent characterized the current period as a good time to expand facilities, down one point. But a net-negative 15 percent expect business conditions to improve over the next six months, down nine points from June and 23 points from May.

“Owners do not trust the economic policies in place or proposed, and they are distressed by global and national developments that make the future more uncertain,” said Dunkelberg.

Sales and Inventories
The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months lost one point, falling to a net-negative 16 percent, 18 points better than June 2009 but indicative of very weak customer activity. Unadjusted, 26 percent of all owners reported higher sales (last three months compared to prior three months, up three points) while 33 percent reported lower sales (down two points). Widespread price cutting continued to contribute to reports of lower nominal sales.

The net percent of owners expecting real sales gains improved one point over June, rising to a net-negative 4 percent of all owners (seasonally adjusted), still quite dismal. Not seasonally adjusted, 26 percent expect improvement over the next three months, 28 percent expect declines.

A net-negative 19 percent of all owners reported gains in inventories (more firms cut stocks than added to them, seasonally adjusted), two points better than June but a very weak number. July 2010 is the 28th negative double-digit month in a row for inventory gains, and the 38th negative month in a row. Unadjusted, 10 percent reported gains in inventory stocks (unchanged), but 25 percent reported inventory reductions (down two points). Plans to add to inventories (on purpose) declined one point to negative 4 percent of all firms (seasonally adjusted).

The weak economy continued to put downward pressure on prices. Twelve percent of owners (down one point) reported raising average selling prices, and 24 percent reported average price reductions (down three points). Seasonally adjusted, the net percent of owners raising prices was a negative 12 percent, a two point increase in the net percent raising prices. July is the 20th consecutive month in which more owners reported cutting average selling prices that raising them.

“With no pricing power and real sales volumes weak, profits are not able to recover,” said Dunkelberg.

Earnings
Small business owners’ reports of positive profit trends worsened by one point in July, registering at a net-negative 33 percent (29 points worse than the best expansion reading reached in 2005).

“Profits are important for the support of capital spending and expansion, so this trend does not signal much growth for the small business sector in coming months,” said Dunkelberg.

Not seasonally adjusted, 18 percent reported profits higher (up 2 points), but 45 percent reported profits falling (down 2 points).

Owners continued to hold the line on compensation, with 8 percent reporting reduced worker compensation, and 12 percent reporting gains. Seasonally adjusted, a net 3 percent reported raising worker compensation, only 5 points better than February’s record low reading of negative 2 percent.

Credit
Regular borrowing gained three points in July as 32 percent reported accessing capital markets at least once a quarter, but still near record lows. A net 13 percent reported loans harder to get than in their last attempt, unchanged from June.

However, overall 91 percent of the owners reported all their credit needs met or they did not want to borrow, up one point. Only 4 percent reported financing as their top business problem.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access