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NFIB: Small-business optimism dips in June

By Eric REinhardt


Small-business optimism fell nearly a point in June to 93.5, remaining in “tepid territory,” according to the monthly economic index released by the National Federation of Independent Business (NFIB) on July 9.

The 0.9 drop in the index effectively ends “any hope of a revival in confidence among job creators,” the NFIB said in a news release.

Six of the 10 index components fell, two rose, and two remained unchanged, the organization said.

Job-creation plans increased slightly in June, but expectations for improved-business conditions remained negative.

The index has been “teetering” between modest increases and declines for months, the NFIB said.

The small-business optimism index was 12 points higher in June than at its lowest reading during the “Great Recession,” according to the NFIB. At the same time, it was also seven points below the pre-2008 average and 14 points below the peak for the expansion.

Public-policy decisions in New York and in Washington highlight a “real disconnect” between the corporate sector, which seems to be doing well, and the small-business sector, says NFIB State Director Mike Durant.

He’s referring to enticements, which he calls a “suitcase full of money” that government uses to attract new businesses, such as the Tax-Free New York (renamed Start-Up New York in June) program aimed at attracting startups to college campuses with tax incentives.

“It’s not going to Main Street. It’s for the headline-grabbing company or corporation to move in here,” Durant says. 

Small businesses are much more dependent on household-income growth and consumer confidence, and those two indicators have been flat for several years, Durant says.

Until small businesses gain more confidence, the general economy will remain sluggish, William Dunkelberg, chief economist at NFIB, said in a July 9 news release.

“After two months of incremental but solid gains, the index gave up in June. This appears par for the course, given that there is no reason for small employers to be more optimistic and lots of things to worry about,” said Dunkelberg. “Washington remains bogged down in scandals and confidence in government’s ability to deal with our fundamental problems remains low. Economic growth was revised down for the first quarter of the year and the outlook for the second quarter is not looking good.”

Small-business owners listed taxes, regulation, and “red tape” as their top business problems in June, with 20 percent of respondents ranking each as their number one problem, the NFIB said.

Another 18 percent of owners cited weak sales as their top problem. Only 2 percent reported financing as a major concern, the organization said.


Index components

Small-business owners were not able to contribute to job growth again in June, with the average increase in employment coming in at a negative 0.09 workers per firm, “essentially zero,” according to the NFIB.

Small businesses added 360,000 new part-time jobs, but about 240,000 full-time jobs “disappeared,” the organization added.

Dunkelberg believes the small-business community has only to look to Washington for reasons why the economy can’t seem to “maintain steam” and is on a “painfully slow” journey towards job creation, Dunkelberg said in an NFIB statement released July 3.

Uncertainty about the federal health-care law continues to have a “negative” impact on small businesses, Dunkleberg said.

“Small employers are still trying to figure out what labor will cost and what firm size will have to comply with which rules. As long as Washington continues to create rolling disasters, [including] exemptions, special deals, delays, confusion, [and] contradictory regulations, small businesses will not be ready to bet on their future by hiring lots of workers with uncertain cost,” Dunkleberg said.

The NFIB survey found 11 percent of small-business owners (up two points) reported adding an average of 3.6 workers per firm over the past few months.

But that figure is offset by the 12 percent of respondents that reduced employment (unchanged) an average of 4.3 workers (a seasonally adjusted figure), producing a seasonally adjusted gain of negative 0.09 workers per firm overall, according to Dunkelberg.

The remaining 77 percent of owners made no net change in employment, he said.


Other survey findings

The survey also found 19 percent of responding small-business owners weren’t able to fill some job openings in their companies, a figure that is unchanged from last month. Another 12 percent used temporary workers, which is “little changed” over the past 10 years, according to the NFIB.

The Patient Protection and Affordable Care Act, the federal health-care reform law, provides incentives to increase the use of temporary and part-time workers, but this indicator has not “registered a trend” toward the use of more temp workers, the NFIB said.

The net percent of all owners reporting higher-nominal sales in the past three months, compared to the prior three months, gave up four points, falling to a negative 8 percent, the NFIB said.

Positive-earnings trends “deteriorated” a single point in June to a negative 23 percent. The survey also found 4 percent of owners reduced employee compensation, while 19 percent reported raising compensation, yielding a seasonally adjusted net 14 percent reporting higher employee compensation, which is down two points from last month.

A net 6 percent of respondents plan to raise compensation in the coming months, which is down three points, according to the NFIB.

When asked about expansion, 7 percent of respondents characterized June as a “good” time to expand facilities, which is down one point. The net percent of owners expecting better-business conditions in six months was a net negative 4 percent, a one point improvement.   

The survey also asks about inflation.

About 12 percent of the respondents said they reduced their average selling prices in the past three months, which is down four points, and 19 percent reported price increases, which is unchanged from last month. The net percent of owners raising selling prices was 8 percent, up six points. As for prospective-price increases, 19 percent plan on raising average prices in the next few months, which is up two points, and 3 percent are planning reductions, which is unchanged.

A net 18 percent plan price increases, which is up three points, the NFIB said. 

The report is based on the responses of 662 randomly sampled small businesses in NFIB’s membership, surveyed throughout the month of June.


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