Small Businesses Growing Less Optimistic: NFIB

The NFIB report finds small-business hiring and capital outlays remain weak as optimism in an economic recovery fades.

After ending several months of slow growth, small-business optimism dropped for a second consecutive month, according to the National Federation of Independent Businesses monthly report, the Small Business Optimism Index, which dropped 0.2 points, to 91.2.

During the economic recovery, now in its third year, the Index has averaged 90, making this the worst recovery period from a recession in the NFIB survey history, which starts in 1973. The July report was based on the responses of 1,803 randomly sampled small businesses in NFIB's membership.

The Index has oscillated between 86.5 (July 2009) and 94.5 (February 2012) since the recession officially ended in June 2009. In comparison, prior to 2008, the Index averaged 100. The picture was bleak across multiple fronts, as more owners indicated that they expect business conditions will be worse (and not improved) in six months, and more owners expect real sales volumes to be lower than those who expect them to be higher in three months.

This pessimistic outlook for future growth is putting a damper on job creation. The reported net change in employment per firm over the past few months (seasonally adjusted) was -0.04; not as poor as June's -0.11. Nearly half (48 percent) of owners hired or tried to hire in the last three months, and 38 percent reported few or no qualified applicants for positions. The report concluded there was no meaningful job creation in July, although pointed out the percentage of owners reporting hard-to-fill job openings held steady at 15 percent.

The percentage of owners planning capital outlays in the next three to six months was unchanged at 21 percent, with just 5 percent characterizing the current period as a good time to expand facilities, in contrast to 10 percent last December. One-fifth of respondents said "poor sales" were their biggest business problem, which has been exacerbated by continued weak consumer spending. When capital expenditure, job creation and sales are taken into account, the report suggests the economic recovery is perilously close to stalling completely-and the NFIB says Washington politicians are part of the problem.

"Congress has recessed without a plan to resolve our calamitous debt/spending cycle or a lasting answer to our dangerous fiscal cliff," the NFIB's chief economist William Dunkelberg said in a prepared statement. "Meanwhile, the White House has presented us with some 'fuzzy math,' asserting that only 3 percent of small businesses will be impacted by planned tax increases. That's not true. The denominator in that calculation is wrong-it should be the 6 million employer firms that provide jobs to half the private sector workforce, meaning that more like 15 percent of small businesses can expect higher taxes in January. 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."