Small business optimism lags along with growth

A monthly measure of optimism among small business owners continues to reflect expectations for only sluggish growth in the months ahead.

The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index slipped two-tenths of a point to 91.2 in July
The latest reading continues a string of recession-level readings that have averaged 90 since the recession officially ended in June 2009. Based on those readings, the recovery has been the least robust since the NFIB started the index in 1973. Prior to 2008, the index averaged 100.

The index is based on the results of monthly surveys of members of the NFIB, a small business advocacy group based in Washington, D.C.

William Dunkelberg, chief economist of the NFIB, said congressional inaction on federal tax cuts scheduled to expire at the end of the year has added to the uncertainty facing small business owners. “The lack of meaningful actions to address tax reform in Washington adds to the certainty of sluggish growth for the remainder of 2012 and the uncertainty of what will come in 2013.”

For July, three of 10 components of the Small Business Optimism Index retreated, three advanced and four remained unchanged.

The proportion of small business owners responding to the survey upon which the July index was based who expect the economy to improve over the next six months rose two points, but remains at a net negative 8 percent. That means more owners expect the economy to worsen than improve.

The share of owners planning staff increases also rose two points, but only brought the net proportion to 5 percent. Meanwhile, 15 percent of owners reported hard-to-fill job openings, unchanged from last month.

The proportion of owners planning capital outlays over the next three to six months held steady at 21 percent. Only 5 percent of owners said they consider now a good time to expand, also unchanged.

The share of owners planning to increase inventories fell a point to a net negative 1 percent.

The proportion of owners who expect sales volume to increase in coming months fell a point to net negative 4 percent. That component of the index has dropped 16 points over the past five months. Poor sales remain the most cited problem for most small business owners — 20 percent in July.

Reports of positive earnings trends dropped another five points in July to a net negative 27 percent.