Small Business Optimism Dips

The following is a press release from the NFIB, a nonprofit, nonpartisan, small-business association.

For the third consecutive month, The National Federation of Independent Business' Small Business Optimism Index fell. While the drop was slight—.3 points, with the index settling at 90.9 in May—the index makes clear that optimism is moving in the wrong direction: a recession-level reading for an economy fighting its way through a recovery. A leading cause of the low reading is the stubborn problem of weak consumer spending, which is especially problematic for services, a sector dominated by small businesses. “Corporate profits may be at a record high, but businesses on Main Street are still scraping by,” said NFIB chief economist Bill Dunkelberg. “Washington is throwing misdirected policies at the problem, offering tax breaks for hiring and equipment investment, but acting surprised when they don’t bear any fruit. The failure to understand why small-business owners are not hiring or investing has resulted in a set of policies that have not been very effective, and Main Street is suffering. The icing on the cake: the growing debt, large deficits, threats of higher taxes, regulations being spewed out by state and local administrations, and the uncertainty of the new health care law—is it any wonder that optimism is down?”

For the third month running, several key economic indicators continued their downward tumble. Job market indicators continued to deteriorate, anticipating very weak job creation and a higher unemployment rate. Capital spending plans and inventory investment plans all weakened and remain at recession levels. Inflation continues to rise, a notable business concern for owners who are raising their own prices at the fastest pace seen in years. And driving the economic uncertainty, one in four owners still report weak sales as their top business problem (followed by taxes and regulations and red tape, only 3 percent cite financing).Some other highlights of May’s Optimism Index include:•    For small firms, the average employment change was +0.01 employees (per firm) over the past three months, or virtually zero. Twelve percent (seasonally adjusted) reported unfilled job openings, down 2 points and a clear signal that unemployment rates will rise. Over the next three months, 13% plan to increase employment (down 3 points from April, down 5 points from March), and 8% plan to reduce their workforce (up 2 points), yielding a seasonally adjusted net negative 1% of owners planning to create new jobs.•    Only 5% of the owners view the current period as a good time to expand; of those who view it as a bad time to expand, 71% of those blame the weak economy, and 14% cite political uncertainty.  The net percent of owners expecting better business conditions in six months was a negative 5%, 15 percentage points lower than January. •    Capital spending remains historically low in spite of very low interest rates and all sorts of expensing incentives. Fifty percent of firms reported making capital expenditures over the past six months, and the percent of owners planning capital outlays in the next three-to-six months fell 1 point to 20%, a recession level reading.•    Sales are down; the net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months lost 4 percentage points, falling to a net negative 9%, with more firms with sales trending down than up. Unadjusted, 23% of all owners reported higher sales (last three months compared to prior three months, up 1 point) while 36% reported lower sales (unchanged). The net percent of owners expecting higher real sales fell 2 points to a net 3% of all owners (seasonally adjusted), 10 points below January’s reading. •    The seasonally adjusted net percent of owners raising average selling prices reached 15%,  up 3 points. Thirty-one percent reported raising average selling prices which is twice the percent of owners who are cutting prices, suggesting that average price levels will be rising, or inflation.The report is based on the responses of 733 randomly sampled small businesses in NFIB’s membership, surveyed throughout the month of May.

NFIB’s Small Business Economic Trends is a monthly survey of small-business owners’ plans and opinions. Decision makers at the federal, state and local levels actively monitor these reports, ensuring that the voice of small business is heard. The NFIB Research Foundation conducts some of the most comprehensive research of small-business issues in the nation. The National Federation of Independent Business is the nation’s leading small-business association. A nonprofit, nonpartisan organization founded in 1943, NFIB represents the consensus views of its members in Washington, D.C., and all 50 state capitals.