The National Federation of Independent Business (NFIB) said that small business confidence ebbed somewhat in June after reaching its highest level since September 2007 in May. The Small Business Optimism Index declined from 96.6 in May to 95.0. Despite the decrease, the Optimism Index averaged 95.6 in the second quarter, up from an average of 93.0 in the first quarter. This suggests that small business owner sentiment has mostly improved, even if it waned a bit in June.
Indeed, the underlying data paint a mixed picture of both encouraging news and persistent challenges. On the positive side, the small business labor market appears to be improving. The percentage of job openings that owners have not been able to fill has risen from 24 percent to 26 percent, its highest point in six years. Moreover, the net percentage planning to hire in the next three months increased from 10 percent to 12 percent – a definite improvement from the 5 percent recorded in March.
Nonetheless, the headline figure fell on a weaker outlook. Small business owners expecting the economy to improve six months from now decreased from zero to -10 percent. In addition, the net percentage of respondents anticipating increased sales over the next three months decreased from 15 percent to 11 percent. Capital spending plans also eased slightly, with the percentage expecting to increase their investments over the next three to six months down from 24 percent to 22 percent. Inventory plans also shifted into contraction for the first time since February, down from 1 percent to -1 percent.
The percentage of respondents saying that the next three months would be a “good time to expand” dropped from 10 percent to 7 percent, with continuing doubts about the economy and the political climate. Taxes (cited by 22 percent) and regulations (20 percent) top the “single most important problem” list, and poor sales (13 percent) and quality of labor (11 percent) rounded out the primary concerns noted by small business owners.
Chad Moutray is the chief economist, National Association of Manufacturers.