Business optimism index drops along with expectations for improving economy

William Dunkelberg

A measure of optimism among small business owners continues to decline on record-low expectations for an improving economy.

The National Federation of Independent Business reported its Small Business Optimism Index dropped 3.6 points to 89.5 in June. The index has remained below its historical average of 98 for six consecutive months.

“As inflation continues to dominate business decisions, small business owners’ expectations for better business conditions have reached a new low,” said Bill Dunkelberg, chief economist of the NFIB.

The small business advocacy group bases the index on the results of monthly surveys of members, most of them small business owners. For June, all 10 of the components the index tracks retreated.

The portion of those who responded to the survey upon which the June index was based who expect the economy improve over the next six months dropped seven points between May and June to net negative 61 percent. That’s the lowest reading in the 48-year history of the index.

A net 23 percent of respondents reported plans for capital outlays, down two points. A net 3 percent said they consider now a good time to expand, down three points.

The portion of respondents who expect sales to increase fell 13 points to a net negative 28 percent.

The share of those who expect increased profits decreased a point to a net negative 25 percent. Of those reporting lower profits, 30 percent attributed the trend to increased materials costs, 16 percent blamed weaker sales and 14 percent cited higher labor costs.

The share of those who plan to increase staffing declined seven points to 19 percent. 

A net 50 percent reported unfilled job openings, down a point. Fully 94 percent of those who said they were hiring reported few or no qualified applicants.

Asked to identify their single most important problem, 34 percent of those who responded cited inflation, up 21 points from a year ago.

A net 69 percent reported raising average selling prices, down three points from a record-high reading in May. Price hikes were most frequent in the retail, transportation, construction and wholesale sectors. Price raising activity has increased over the past year to a level not seen since the 1980s.

For June, a net 48 percent of respondents reported raising compensation, down a point. A net 28 percent said they plan to increase compensation in the next three months.

The share of respondents planning to increase inventories fell three points to a net negative 2 percent. A net 5 percent reported existing inventories were too low, also down three points.