Optimism index inches upward, but owners mostly pessimistic

A monthly measure of optimism among small business owners edged up a bit in August, but still reflects a mostly pessimistic outlook.

The National Federation of Independent Business reported that its Index of Small business Optimism rose seven-tenths to 88.8.

The index, based on the results of monthly surveys of small business owners across the country, continues to post readings typical of an economy in recession.

“Small business owners are expecting sub-par growth in the second half of 2010,” said William Dunkelberg, chief economist for the NFIB. “Consumers are pessimistic, business owners are pessimistic and Washington’s leadership has been unable to inspire any confidence in the future.”

The proportion of small business owners responding to the August survey who expect business conditions to improve over the next six months rose seven points, but remains at a net negative 8 percent.

The share of owners who plan to increase staffing over the next three months fell a point to a seasonally adjusted 1 percent. Meanwhile, a seasonally adjusted 11 percent of owners reported current job openings, up a point.

The proportion of owners who expect to make capital expenditures over the next few months fell two points to 16 percent.

A net 4 percent of owners said they consider now a good time to expand, down a point. Of those surveyed for the August index, 73 percent said the current period is not a good time to expand. Of those, 69 percent blamed the economy and 18 percent blamed the political environment.

“If the poor political environment is top of mind for nearly a fifth of those opposed to expanding, it is likely second on the list for most of the others,” Dunkelberg said.

The share of owners reporting higher sales over the past three months remained unchanged at a net negative 16 percent. The proportion of owners who expect sales gains rose four points, but came to a net zero.

Small business owners continue to cut inventories. At a seasonally adjusted net negative 15 percent, the reading has remained negative for 39 consecutive months.

A net negative 30 percent of owners reported positive profit trends, up three points.

“Profits are essential for the support of capital spending and expansion,” Dunkelberg said. “Until earnings improve, small business owners are unlikely to invest in new hires or new equipment.”