Small-business owners slash optimism in June

Small-business owners’ plans to hire dried up in June, helping to cause a monthly optimism index to sag to its lowest level since October 2011.

The Small Business Optimism Index, measured by the National Federation of Independent Business (NFIB), slipped 3 points to 91.4 in June. It hit its lowest point since registering 90.2 last October.

In June, business owners cut plans to hire in the next three months. Seasonally adjusted, a net 3 percent of owners anticipated increasing hiring in that time period. That’s down 3 points from May, when a net 6 percent planned to hire over a three-month period.

New York director’s comments

Small-business owners appear to be losing patience waiting for government measures to improve economic activity, according to NFIB New York State Director Mike Durant. The national optimism-index results and his anecdotal experience bear that out, he says.

“I think what we’re seeing here is sort of a delayed response to the lack of significant action both in Washington and, frankly, in the last few months here in New York for business,” he says.

June’s optimism index does not reflect small-business owners’ reactions to the U.S. Supreme Court ruling that upheld key portions of the federal health-care reform law, according to the NFIB. The court issued its ruling June 28, but ramifications on business owners’ outlooks will not be felt until the NFIB’s July index.

However, Durant has been hearing reactions from some of the organization’s New York members, he says.

“They’re always skeptical of the legislation,” he said. “They do not believe this bill will do what proponents say in driving down their health-care costs. So it’s really going to be a problem.”

The NFIB is one of the parties that sued the federal government over the health-care reform law.

Other survey findings

Hiring plans weren’t the only component of the Small Business Optimism Index to decline in June, as eight of 10 components fell. Just one indicator increased, while another was unchanged from May.

The only increasing component was expected credit conditions in the next three months. It improved 2 points to a net -8 percent of regular borrowers who anticipated easier credit conditions.

The net negative result means more survey respondents still predicted tighter credit conditions than easier conditions. That’s because the NFIB calculates net percentages by subtracting pessimistic survey answers from optimistic replies. A positive net percentage indicates more optimistic business owners, while negative percentages reflect prevalent pessimism.

Satisfaction with current inventory levels did not change in June. A net 0 percent of business owners indicated their inventories were too large, seasonally adjusted. Current-inventory satisfaction has not changed since April, according to the NFIB survey.

The remaining optimism-index components fell by varying degrees. Business owners’ outlook for general business conditions dropped the most, plummeting eight points. A net -10 percent of business owners expect better business conditions in six months, seasonally adjusted.

Earnings also declined sharply, skidding 7 points in June. A seasonally adjusted net -22 percent of business owners reported higher earnings in the last three months when compared to the prior three months.

Owners dropped plans to make capital expenditures. A seasonally adjusted 21 percent of small-business owners said they planned to make capital expenditures in three to six months, a dip of 3 points from May.

Inventories will not be changing in the next three to six months, according to the NFIB survey. Seasonally adjusted, a net 0 percent of small-business owners said in June that they plan to increase inventories, a decrease of 2 points from the previous month.

Expectations for sales dipped into negative territory with a 5-point tumble in June. Seasonally adjusted, a net -3 percent of business owners said they expect higher real sales in the next three months.

Business owners reported a lower number of job openings they were unable to fill in June. Seasonally adjusted, 15 percent of survey respondents said they had positions they could not fill, down five points from last month.

 And fewer business owners in June judged the next three months as a good time to expand. Just 5 percent said the next three months would be good for expansion, seasonally adjusted — a drop of 2 points from May.

“There’s really not a lot of optimism. What we saw was a major decline in expectations for sales and for the state of the economy six months out,” William Dunkelberg, the NFIB’s chief economist, said in a July 10 interview on CNBC. “And of course, if you don’t think things are going to be very good, then you see hiring plans fall, you see capital spending down, you see inventory investment fall to nothing, and that’s not good.”

A plurality of business owners cited poor sales as their single most important problem. In June, 23 percent of business owners named sales as their top problem, followed by taxes, which were mentioned by 21 percent, and government regulations and red tape, which were cited by 19 percent.

The NFIB is a nonprofit organization that represents members in 50 states and Washington, D.C. It randomly surveyed 740 of its member businesses in the month of June to develop the optimism index.