Small-Business Optimism Slides in June: NFIB

The NFIB report paints an ugly picture of U.S. small businesses, as growth stagnates and optimism nosedives.

The outlook for the nation€™s small and midsize businesses continues to dim, with the National Federation of Independent Businesses Index of Small-Business Optimism declining a troubling three points in June, falling to 91.4, in what the organization called a €œsignificant€ decline. Only one out of 10 Index components, expected credit conditions, improved in June, while weak sales were cited by nearly a quarter (23 percent) of respondents as their most important business problem. Taxes (21 percent) and unreasonable regulations and red tape (19 percent) were also high on the list of small-business roadblocks.

The report, based on the responses of 740 randomly sampled small businesses in NFIB€™s membership, found the net change in employment per firm over the past few months was negative for the first time since December, with 12 percent reducing employment by an average of 2.8 workers. Nine percent of the owners added an average of 2.6 workers per firm over the past few months (seasonally adjusted), and the vast majority (79 percent) of business owners made no net change in employment.

€œForty-four percent of the owners hired or tried to hire in the last three months and 33 percent reported few or no qualified applicants for positions. The figures suggest that job creation has been very weak,€ the report noted. €œWhile reports of reductions in employment have returned to €˜normal€™ levels, the percent reporting increases in employment has not. The percent of owners reporting hard-to-fill job openings lost 5 points, falling to 15 percent of all owners. That is not a strong labor market.€

Overall, labor market indicators, spending plans for capital equipment and inventories took a drubbing, accounting for about 40 percent of the three-point decline. The frequency of reported capital outlays over the past six months dropped three points to 52 percent, while the percent of owners planning capital outlays in the next three to six months declined a €œdispiriting€ three points to 21 percent. However, 93 percent of all owners reported that all their credit needs were met or that they were not interested in borrowing, with just three percent citing financing as their top business concern.

€œThe economy definitely slowed mid-year, not a huge recession threat but slower than earlier in the year. Job growth will be far short of that needed to reduce the unemployment rate unless lots of unemployed leave the labor force. NFIB members didn€™t add a lot of jobs and don€™t plan to in the coming months. Capital spending and inventory investment also weakened,€ the report concluded. €œExpectations for improvements in sales and business conditions faded, so no reason to hire additional workers or buy new inventory. €˜Political uncertainty€™ remained historically high as the reason why the current period is not a good time to expand. All in all, this month€™s survey was a real economic downer.€