Small Business Optimism Stalls Out

The National Federation of Independent Business' monthly Small-Business Optimism Index dropped one tenth of a point in June, settling at 90.8, an unsurprising reading, basically unchanged from the previous month and solidly in recession territory. While some indicators rose slightly -- including expected capital outlays -- pessimism about future business conditions and expected real sales gains tugged the index down, causing a small but disappointing drop in the index for the fourth consecutive month.

Although June marked the second-year anniversary of the recovery, it appears there was little happening to make small business owners optimistic. Earnings trends for small businesses remained distressingly negative in June, particularly given that the recovery is now beginning its third year. According to the report, 69 percent of the owners view the current period as a poor time to expand and 75 percent of those blame the weak economy for their outlook, while 10 percent cite political uncertainty.

"Small-business owners are registering a vote of no confidence in the federal government," said NFIB chief economist Bill Dunkelberg. "Between the deluge of new regulations and a Washington policy agenda that is largely ignorant of Main Street needs, stubbornly low consumer spending, and grave concern among small firms about the federal budget, there is not much to be optimistic about as a small-business owner. Who can blame the prevalence of pessimism when administration officials are telling Congress that small businesses need to pay more in taxes to support government spending programs?"

Although June's employment growth was weak, 15 percent (seasonally adjusted) of small firms reported unfilled job openings, a 3-point increase from May and an indication that the unemployment rate will ease back below 9 percent in the late summer or early fall. Over the next three months, 11 percent plan to increase employment (down 2 points), and 7 percent plan to reduce their workforce (down 1 point), yielding a seasonally adjusted 3 percent of owners planning to create new jobs, and a 4-point improvement. However, these statistics are still at recession levels and any real employment gains are still to be realized, the report noted.

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