Small business index reflects pessimism, not optimism

A monthly measure of optimism among small business owners has declined for a fifth straight month, a decline that’s prompted one economist to suggest the index tracks pessimism instead.

The National Federation of Independent Business reported that its Small Business Optimism Index fell another nine-tenths of a point to 89.9 in July.

The decline was larger than the previous three months and brings the index to below the average reading of 90.2 for a two-year period that’s technically constituted an economic recovery.

“Given the current political climate, the protracted debate over how to handle the nation’s debt and spending and now this latest development of the debt downgrade, expectations for growth are low and uncertainty is great,” said Bill Dunkelberg, chief economist for the NFIB, a small business advocacy group based in Washington, D.C.

After two years of economic expansion, the index is only 3.4 points higher than it was in July 2009, a month after the Great Recession officially was declared at an end, Dunkelberg said. “Perhaps we might begin referring to the Small Business Pessimism Index from now on.”

For July, six of 10 components of the index retreated and two more remained unchanged.

The proportion of owners citing poor sales as their top business problem retreated a few points , hile reports of sales trends moved higher than a few months ago, Dunkelberg said. Still, the latest index readings signal slow growth and high unemployment.

The proportion of small business owners responding to the survey upon which the July index results were based who expect the economy to improve over the next six months fell four points to a net negative 15 percent. That reading is 25 points lower than in January.

While 50 percent of owners reported capital outlays over the previous six months, 20 percent expect to make outlays over the next three to six months. That reading is down a point from June and remains at level reflecting recession. Just 6 percent of owners said they consider now a good time to expand, up two points.

A seasonally adjusted 12 percent of owners reported unfilled job openings, down three points. A seasonally adjusted net 2 percent of owners plan to increase staffing over the next three months.

The share of owners reporting higher nominal sales over the past three points fell a point to a net negative 8 percent. A net negative 2 percent of owners expect higher real sales, down two points.

With more owners reporting lower profits than higher profits, the reading for earnings trends remained unchanged at a net negative 24 percent. Still, that’s the best reading in 43 months.