Sagging earnings underpinned a dip in small-business owners’ optimism in July, according to a monthly index from the National Federation of Independent Business (NFIB). The NFIB reported that its Small Business Optimism Index slipped 0.2 points to 91.2, remaining at “recession levels.” It has declined for three consecutive months, although July’s decrease is smaller than […]
Sagging earnings underpinned a dip in small-business owners’ optimism in July, according to a monthly index from the National Federation of Independent Business (NFIB).
The NFIB reported that its Small Business Optimism Index slipped 0.2 points to 91.2, remaining at “recession levels.” It has declined for three consecutive months, although July’s decrease is smaller than a 3-point drop that took place in June.
Optimism eroded in July as one of the index’s components, earnings, headed south. Seasonally adjusted, a net -27 percent of small-business owners reported higher earnings in the last three months versus the prior three months — a decrease of 5 points.
The negative result shows business owners primarily generated lower earnings. That’s because the NFIB calculates net percentages by subtracting pessimistic survey responses from optimistic responses. Positive net percentages reflect predominantly optimistic business owners, while negative percentages indicate widespread pessimism.
New York director’s comments
The Small Business Optimism Index is a nationwide reading, but New York’s small-business owners are also losing confidence, according to NFIB New York State Director Mike Durant.
He says two topics related to the state’s government are hurting owners’ confidence: a legislative proposal to increase the minimum wage, and a potential increase in Thruway tolls.
“In New York, I think that business owners that were NFIB members were starting to feel somewhat confident as 2011 went into 2012,” Durant says. “As [the legislative] session ended and we went into minimum-wage increase talks and toll hikes, I think they’re feeling somewhat less optimism.”
July’s national optimism-index results are the first showing business owners’ reactions to June’s U.S. Supreme Court ruling upholding the federal health-care reform law. The NFIB is one of the parties that sued the federal government over the law.
The court’s ruling may have had a relatively small impact on business owners’ collective outlook because they were expecting the law to be implemented, Durant says. And in New York, many business owners seem to feel that the law will have less of an immediate effect because the state’s costs are already inflated, he adds.
“Health-care costs are already high in New York,” Durant says. “It’s going to take a while if the act is implemented for that to be felt here.”
Other survey findings
The other components of the optimism index were a mixed bag in July. Plans to hire in the next three months ticked up 2 percentage points to a seasonally adjusted net 5 percent. But the portion of business owners unable to fill open job positions remained the same as in June, 15 percent, seasonally adjusted.
Plans to increase inventories in the next three to six months edged down 1 point to a seasonally adjusted net -1 percent. Current inventory satisfaction, meanwhile, remained unchanged for the fourth straight month. Seasonally adjusted, a net 0 percent of small-business owners said their inventories were too low.
Capital-expenditure plans were also unchanged from the previous month, with 21 percent of small-business owners planning to make a capital expenditure in the next three to six months. And the portion of business owners who judged the next three months to be a good time to expand held steady as well at 5 percent, seasonally adjusted.
Business owners predicted having more difficulty borrowing. A net -7 percent of regular borrowers anticipated easier credit conditions during the next three months, a rise of just 1 point.
Sales expectations slipped by 1 point, resulting in a net -4 percent of survey respondents anticipating higher sales in the next three months, seasonally adjusted.
Owners remained largely sour on the prospects for general business conditions. Seasonally adjusted, a net -8 percent said conditions will be better six months from now, which is up 2 points from last month.
Government requirements and red tape tied with taxes as the problems cited by the most small-business owners as their single most important. Each problem was named by 21 percent of survey respondents. Poor sales proved to be the third-most mentioned problem, as 20 percent of respondents named it.
The NFIB is a nonprofit organization with members in 50 states and Washington, D.C. It randomly surveyed 1,803 of its member businesses in the month of July to develop the optimism index.