Index: Small business owners shaken, not stirred

A monthly measure of optimism among small business owners retreated further in July even as concerns about business and labor conditions mounted.

The National Federation of Independent Business reported that its Index of Small Business Optimism dropped nearly a point to 88.1. The latest decline comes on the heels of a 3.2-point drop in June.

The index, based on the results of monthly surveys of small business owners, has remained below 93 for 31 months and below 90 for 24 of those months — readings typical of an economy mired in recession.

“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,” said William Dunkelberg, chief economist for the NFIB.

The proportion of small business owners responding to the July survey who expect business conditions to improve over the next six months fell another nine points to a net negative 15 percent.

However, the share of owners who plan to increase staffing over the next three months edged up a point to a seasonally adjusted net 2 percent. Meanwhile, a seasonally adjusted 10 percent of owners reported current job openings — up a point from June, but still historically weak.

The proportion of owners who expect to make capital expenditures over the next few months slipped a point to 18 percent, just two points above the record low for the 35-year index. Just 5 percent of owners said now is a good time to expand, down a point.

The share of owners reporting higher sales over the past three months fell a point to a net negative 16 percent. The proportion of owners who expect sales gains improved a point, but only to net negative 4 percent.

Small business owners continue to cut inventories with more owners reporting stock reductions than gains. At a seasonally adjusted net negative 19 percent, the reading has remained negative for 38 consecutive months. A net negative 33 percent of owners reported positive profit trends, down a point from June.

“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,” Dunkelberg said.

The weak economy continued to apply downward pressure on prices. Seasonally adjusted, a net negative 12 percent of owners reported increased prices. July was the 20th straight month in which more owners reported cutting average selling prices than raising them.