Small business index portends slow growth ahead

A monthly measure of optimism among small business owners has edged up, but not enough to reflect much enthusiasm for expanding  operations or inventories.

William Dunkelberg
William Dunkelberg

The National Federation of Independent Business reported that its Index of Small Business Optimism rose two-tenths of a point to 93.8 in May.

Slow growth in the small business sector means slow growth for the overall economy, said Bill Dunkelberg, chief economist for the NFIB. “The bottom line is that without an empowered small business sector, the economy will grow at a mediocre pace. Politicians in Washington credit any insignificant growth in the economy to their policies. But realistically, it’s the increase in the population. At this point, we should expect the same slow growth for the rest of the year.” 

Juanita Duggan, president and chief executive officer of the NFIB, said increasing government regulation makes it harder to run a business. “Mix in the presidential election, which is a wild card, and weak sales, and it’s easy to see why small business owners are reluctant to make big bets right now.”

The NFIB bases the index on the results of surveys of members of the small business advocacy group, most of them small business owners. For May, four of 10 components of the index advanced, four retreated and two held steady.

The proportion of small business owners responding to the survey upon which the May index was based who expect the economy to improve rose five points. But at a net negative 13 percent, more owners anticipate worsening rather than improving conditions.

The share of owners planning to increase capital outlays over the next three months fell two points to 23 percent. A net 9 percent of owners said they consider now a good time to expand, up a point.

A net 12 percent of owners anticipate increased staffing, up a point. Meanwhile, 27 percent of owners reported hard-to-fill job openings, down two points.

The proportion of owners who expect to increase inventories fell a point to a net negative 1 percent. The share of owners who said they consider current inventories too low rose a point to a net negative 4 percent.

A net 1 percent of owners reported higher sales, unchanged from April. But  the proportion of owners reporting higher earnings fell a point. At net negative 20 percent, more owners reported profits were lower than higher quarter to quarter.

Owners cited taxes as their most pressing business challenge, followed by government regulation and poor sales.