Small Business Optimism Index reflects mixed outlook

William Dunkelberg

A monthly measure of optimism among small business owners has edged down on a mix of lower expectations for improving economic conditions and earnings, but more upbeat expectations for hiring and sales.

The National Federation of Independent Business reported that its Small Business Optimism Index slipped a tenth of a point to 94 in August.

“The August reading provided us with a rather perplexing set of statistics — internally consistent on some dimensions, such as lower sales bringing lower profits, but contradictory in other ways, such as lower job openings, but huge gains in hiring plans,” said Bill Dunkelberg, chief economist for the NFIB.

The outlook likely is affected in part by impending deadlines associated with the federal health care law as well as concerns about a possible U.S. military strike in Syria and potential federal budget impasse, Dunkelberg said. “The September survey will hopefully straighten things out. But with Syria on the horizon, the budget situation still up in the air and Obamacare being rolled out, clarity over our economic direction is not likely to be the outcome.”

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

For August, five of 10 components of the index advanced, while four components retreated and one held steady.

The proportion of small business owners responding to the survey upon which the August index was based who expect better economic conditions in six months dropped four points. At a net negative 10 percent, the reading reflects more pessimistic than optimistic responses.

The share of owners planning capital outlays in the next three to six months rose two points to 25 percent. But only 7 percent of owners characterized now is a good time to expand, down two points.

A net 16 percent of owners said they plan to increase staffing, an increase of seven points to the highest level since before the recession. A net 16 percent of owners also reported hard-to-fill job openings, down four points.

The proportion of owners reporting higher sales over the past three months compared to the three-month span before that tumbled 17 percents to a net negative 24 percent, the second largest monthly decline in the history of the index.

The share of owners who expect higher earnings dropped 13 points to a net negative 35 percent.

At the same time, though, the share of owners who expect higher sales volume surged eight points to 15 percent, the highest reading so far during the latest recovery cycle.

Still, only a net negative 1 percent of owners reported inventory levels as too low, unchanged from July.