Small business optimism retreats on dour outlook

William Dunkelberg
William Dunkelberg

A monthly measure of confidence among small business owners has retreated on less upbeat expectations for capital spending, sales and a host of other factors.

The National Federation of Independent Business reported that its Small Business Optimism Index retreated 4.2 points to 94.1 in June. With the decline, the index has slipped back below the long-term average of 98.

“June terminated a promising string of improvements in owner optimism during the first months of the year,” said Bill Dunkelberg, chief economist of the NFIB. “While it is not a disaster or a signal of a looming recession, it is a disappointing sign that economic growth on Main Street is not set for a strong second half of growth. The weakness was substantial across the board, showing no signs of a growth spurt in the near future.”

The NFIB bases the index on the results of monthly surveys of members of the small business advocacy group. For June, nine out of 10 components of the index declined. Expected declines in capital spending, sales, business conditions and earnings accounted for 75 percent of the overall drop in the index.

The proportion of small business owners responding to the survey upon which the June index was based who expect the economy to improve dropped six points to a net negative 9 percent. The means more owners anticipate worsening than improving conditions.

The share of owners planning capital outlays over the next three to six months slipped two points to 23 percent. The portion of owners who consider now a good time to expand fell five points to 9 percent.

A net 9 percent of owners reported plans to increase staffing, down three points from May and the lowest reading since September. A net 24 percent of owners reported hard-to-fill job openings in June, down five points.

The net percentage of owners planning to add to inventories fell eight points to a negative 4 percent in response to expectations for weaker sales. The share of owners who said existing inventories were too low declined four points to a net negative 4 percent.

The portion of owners who expect higher sales retreated three points to a net 4 percent. A net 10 percent of owners cited poor sales as the single most important problem facing their businesses, fourth behind taxes, government regulations and quality of labor.

The share of owners reporting higher earnings tumbled 10 points to a net negative 17 percent.