Small Business Optimism Stagnates: NFIB Report

Although June marked the second-year anniversary of the recovery, there was little to make small business owners optimistic.

The National Federation of Independent Business' monthly Small-Business Optimism Index dropped one tenth of a point in June, settling at 90.8, an "unsurprising" reading, basically unchanged from the previous month and solidly in recession territory. While some indicators rose slightly-including expected capital outlays-pessimism about future business conditions and expected real sales gains tugged the index down, causing a "small but disappointing" drop in the index for the fourth consecutive month.

Although June marked the second-year anniversary of the recovery, it appears there was little happening to make small business owners optimistic. Earnings trends for small businesses remained "distressingly negative" in June, particularly given that the recovery is now beginning its third year. According to the report, 69 percent of the owners view the current period as a poor time to expand and 75 percent of those blame the weak economy for their outlook, while 10 percent cite political uncertainty.

"Small-business owners are registering a vote of -no confidence' in the federal government," said NFIB chief economist Bill Dunkelberg. "Between the deluge of new regulations and a Washington policy agenda that is largely ignorant of Main Street needs, stubbornly low consumer spending, and grave concern among small firms about the federal budget, there is not much to be optimistic about as a small-business owner. Who can blame the prevalence of pessimism when administration officials are telling Congress that small businesses need to pay more in taxes to support government spending programs?"

Although June's employment growth was weak, 15 percent (seasonally adjusted) of small firms reported unfilled job openings, a 3-point increase from May and an indication that the unemployment rate will ease back below 9 percent in the late summer or early fall. Over the next three months, 11 percent plan to increase employment (down 2 points), and 7 percent plan to reduce their workforce (down 1 point), yielding a seasonally adjusted 3 percent of owners planning to create new jobs, and a 4-point improvement. "However, these statistics are still at recession levels and any real employment gains are still to be realized," the report noted.

Access to credit remains a limited problem as it continues to affect a small percentage of owners. Three percent of owners reported financing as their No. 1 business problem, and 91 percent reported that all their credit needs were met or that they were not interested in borrowing. Nine percent reported that not all of their credit needs were satisfied, 53 percent said they did not want a loan and 13 percent did not answer the question and might be presumed to be uninterested in borrowing as well.

"So, for the overwhelming majority of owners, 'credit supply' is not a problem," the report said. "Twenty-nine percent of all owners reported borrowing on a regular basis, unchanged from May and only 1 point above the record low."