Small Business Optimism Fell in June, Report Finds

Small business owners across the U.S. are growing increasingly pessimistic about the speed and stamina of the economic recovery, a report by the National Federation of Independent Businesses (NFIB) finds.

A report by the National Federation of Independent Businesses (NFIB) found the small-business sector is not on a positive trajectory and noted the Small Business Optimism index fell 3.2 points in June after posting modest gains for several months.

A survey of small businesses nationwide found over the next three months, 8 percent plan to reduce employment (up one point), and 10 percent plan to create new jobs (down four points), yielding a seasonally adjusted net 1 percent of owners planning to create new jobs, unchanged from the May reading and positive for the second time in 20 months.

Since the third quarter of 2009, job creation plans have underperformed the recoveries from the other two deep recessions covered by the NFIB survey. "With this half of the private sector missing in action, the poor growth performance is no surprise," the report noted. Reports of positive profit trends worsened by three points in June, registering a net negative 32 percentage points (28 points worse than the best expansion reading reached in 2005).

For those reporting lower earnings compared with the previous three months, 55 percent cited weaker sales, 2 percent blamed rising labor costs, 6 percent higher materials costs, 2 percent higher insurance costs and 9 percent blamed lower selling prices. Two percent blamed taxes and regulatory costs. "The persistence of this imbalance is bad news for the small business community," wrote the report's authors, William Dunkelberg and Holly Wade. "Profits are important for the support of capital spending and expansion."

The report blamed "hurricane force headwinds" blocking a sustained and stable economic recovery, emanating from a gridlocked government and an unrealistic view of what small businesses need. "Either policymakers have no idea how to help the economy or they are intentionally committing it to unsustainable expenditure growth and deficits so large that there will be no alternative but to raise taxes, a slow suicide for a dynamic economy," the report stated. "While political leaders trumpet their ideological attempts to remake the economy and save small business, more and more ordinary folks are wondering what in the world are they are thinking."

The report found the frequency of reported capital outlays over the past six months was unchanged at 46 percent of all firms, two points above the 35-year record low reached most recently in December 2009. The percent of owners planning to make capital expenditures over the next few months fell a point to 19 percent, three points above the 35-year record low. Six percent characterized the current period as a good time to expand facilities, up one point. But a net negative 6 percent expect business conditions to improve over the next six months, down 14 points from May.