Small Business Optimism Index continues slide

William Dunkelberg

A monthly measure of optimism among small business owners continues to decline on less upbeat expectations for sales, earnings and staffing.

The National Federation of Independent Business reported its Small Business Optimism Index dropped 5.5 points to 90.9 in April. The index has decreased 13.6 points over the past two months in the aftermath of the coronavirus pandemic and related restrictions.

“The impact from this pandemic, including government stay-at-home orders and mandated nonessential business closures has had a devastating impact on the small business economy,” said William Dunkelberg, chief economist of the NFIB.

While federal lending programs have offered some assistance, Dunkelberg said small businesses need more flexibility in how they use loans as well as liability protection.

Still, small business owners expect a recession triggered by the pandemic to be short-lived.

The NFIB bases the index on the results of monthly surveys of members of the small business advocacy group, most of them small business owners.

For April, nine of 10 components of the index decreased.

The portion of those who responded to the survey upon which the latest index was based who expect higher real sales dropped 30 points to a net negative 42 percent. That’s the lowest reading in the 46-year history of the index and nearly double the second-lowest reading of negative 24 percent in April 1980.

The share of those reporting higher earnings fell 14 points to a net negative 20 percent. Among those reporting lower earnings, 39 percent cited lower sales.

The proportion of those planning to increase staffing decreased eight points to a net 1 percent. A net 24 percent reported hard-to-fill opening openings, down 11 points.

A net 18 percent of respondents reported plans for capital outlays, down 3 points. A net 3 percent said they consider now a good time to expand, down 10 points to the lowest level since March 2010.

A net 4 percent of respondents reported plans to increase inventories, down a point. At a net negative 7 percent, more respondents reported their inventories were too high rather than too low.

Still, 29 percent of those who responded to the survey said they expect the economy to improve over the next six months. That’s a 24-point gain that more than offset a 17-point decline in March.

“A large percent of the unemployed expect to be rehired as the economy opens back up. But the picture is further confused by unemployment benefits that for many exceed previous pay,” Dunkelberg said. “Small business owners are starting to rehire laid-off employees as states lift business restrictions and small business loans are hitting bank accounts.”