Small-business owners’ optimism dropped slightly in June, according to a monthly National Federation of Independent Business survey of owners’ plans and opinions.
The NFIB’s monthly economic index, which is based on the survey, dropped just under a point and landed at 93.5.
Six of the 10 index components fell, two rose and two were unchanged. While job creation plans increased slightly in June, expectations for improved business conditions remained negative. The index has been teetering between modest increases and declines for months. The index, however, is 12 points higher in June than at its lowest reading during the Great Recession, but seven points below the pre-2008 average.
“After two months of incremental but solid gains, the index gave up in June. This appears par for the course, given that there is no reason for small employers to be more optimistic and lots of things to worry about,” said NFIB chief economist Bill Dunkelberg. “Washington remains bogged down in scandals and confidence in government’s ability to deal with our fundamental problems remains low. Economic growth was revised down for the first quarter of the year and the outlook for the second quarter is not looking good. Nothing cheers up a small-business owner more than a customer, and they remain scarce and cautious while consumer spending remains weak and more owners are reporting negative sales trends than positive ones. It certainly doesn't help that the endless stream of delays and capitulations of certain provisions of the healthcare law adds to the uncertainty felt by owners. Until growth returns to the small-business half of the economy, it will be hard to generate meaningful economic growth and job creation.”
The top business problems for small-business owners in June were taxes and regulations and red tape, with 20 percent of those surveyed ranking each as their top problem. Another 18 percent of owners cited weak sales as their top problem, but only 2 percent reported that financing was a major concern.
The survey included questions on:
Job Creation: Small-business owners were not able to contribute to job growth again in June, with the average increase in employment coming in at a negative 0.09 workers per firm. While 360,000 new part-time jobs were added, about 240,000 full-time jobs disappeared.
Hard to Fill Job Openings: Nineteen percent of all owners surveyed reported job openings they could not fill in the current period (unchanged). Twelve percent of owners reported using temporary workers, little changed over the past 10 years. The health care law provides incentives to increase the use of temporary and part-time workers, but this indicator has not registered a trend toward the use of more temps.
Sales: The net percent of all owners reporting higher nominal sales in the past three months compared to the prior three months gave up four points, falling to a negative 8 percent. The net percent of owners expecting higher real sales volumes lost three points, falling to 5 percent of all owners.
Warnings and Wages: Reports of positive earnings trends deteriorated one point in June to a negative 23 percent. Four percent of owners reported reduced worker compensation and 19 percent reported raising compensation, yielding a seasonally adjusted net 14 percent reporting higher worker compensation (down 2 points). A net 6 percent of those surveyed plan to raise compensation in the coming months, down three points.
Credit Markets: Credit continues to be a non-issue for small employers, five percent of whom say that all their credit needs were not met in June, unchanged from May. Twenty-nine percent of owners surveyed reported all credit needs met, and 53 percent explicitly said they did not want a loan (67 percent including those who did not answer the question, presumably uninterested in borrowing).
Capital Outlays: In June, the frequency of reported capital outlays over the past six months fell one point to 56 percent, nine points below the average spending rate through 2007. The percent of owners planning capital outlays in the next three to six months was unchanged at 23 percent. The frequency of expenditures remained at the high end of recession-level readings, but there is no surge in capital spending on the horizon.
Good Time to Expand: In June, only 7 percent characterized the current period as a good time to expand facilities (down 1 point). The net percent of owners expecting better business conditions in six months was a net negative 4 percent, a one point improvement.
Inventories: The pace of inventory reduction continued in June, with a net negative 7 percent of all owners reporting growth in inventories, unchanged from May. For all firms, a net negative 2 percent (down three points) reported stocks too low, a sharp deterioration from May and consistent with weak spending which produces a buildup in stocks.
Plans to add to inventories declined sharply; the net percent of owners planning to add to inventories fell 4 points to a negative 1 percent of all firms.
Inflation: Twelve percent of the NFIB owners surveyed reported reducing their average selling prices in the past three months (down four points), and 19 percent reported price increases (unchanged). The net percent of owners raising selling prices was 8 percent, up 6 points. As for prospective price increases, 19 percent plan on raising average prices in the next few months (up two points), and 3 percent plan reductions (unchanged). A net 18 percent plan price hikes, up three points.
The report is based on the responses of 662 randomly sampled small businesses in NFIB’s membership, surveyed throughout the month of June.
Go to the complete report.