FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

posted on 12 July 2016

June 2016 Small Business Optimism Again Insignificantly Improves.

from the National Federation of Independent Business

The Index of Small Business Optimism rose seven-tenths of a point in June to 94.5, a negligible increase showing no real enthusiasm for making capital outlays, increasing inventories, or expanding.

At 94.5, the Index remains well below the 42-year average of 98. Four of the 10 Index components posted a gain, three declined, and three were unchanged. The biggest increase was Expected Business Conditions, which rose four points, a good sign, but more owners still expect conditions to be worse than expect improvement. Owners are still reporting that they cannot find qualified workers and cite it as their third "Single Most Important Business Problem."

Job openings and capital spending plans both increased to "expansion" high readings, but remain historically low for a growth period. Weak capital spending remains one of the main causes for slow GDP growth. And the political climate continues to be the second most frequently cited reason for why owners think the current period is a bad time to expand.

Half of the gain came in the two labor market components, an encouraging development. The market was expecting the index between 93.0 to 94.1 with consensus at 94.0 - versus the actual at 94.5.

NFIB chief economist Bill Dunkelberg states:

Small business optimism did not go down, which is good, but small businesses are in maintenance mode experiencing little growth. Uncertainty is high, expectations for better business conditions are low, and future business investments look weak. Our data indicate that there will be no surge from the small business sector anytime soon and prospects for economic growth are cloudy at best.

Report Commentary:

Federal Reserve officials had the market all set for a June or July rate hike, then came the employment numbers, stunningly low, and then the BREXIT vote. Now, many observers expect no hike for the rest of this year, maybe even in 2017. One data point and a UK vote, and the entire projected policy path is changed. Not to mention that the data are subject to substantial revisions so who knows where they will land. For example, Q1 GDP growth estimates started at 0.4 percent and ended up at 1.1 percent, almost 3 times larger. Financial markets plunged for two days and then made it up the next two, no surprise with 50 percent on each side of the BREXIT bet. So the policy path remains "data dependent" as if these monthly data points are good guides to longer term growth prospects. For fiscal policy, the expectation remains the same - no new developments, $600 billion will be added to the deficit. State and local government spending will pick up modestly, not much to hang your hat on unfortunately.

Consumer sentiment went down (University of Michigan) or up (Conference Board) depending on the source but the most recent retail sales figures were promising. Consumer spending is critically important to small businesses. Ford doesn't sell cars, small business owners do. The savings rate in Q2 was half a point lower than in Q1, if that went to spending, it will support GDP growth. The New York Fed's advance estimates put Q2 growth at 2.1 percent and 2.2 percent for Q3. The Atlanta Fed is at 2.6 percent for Q2. That a big difference in terms of job growth.

The NFIB data indicate no surge in growth coming from the small business sector to support Q3 growth. Capital spending plans are very low in the West South Central states, 18 percent vs 26 percent nationally. Reports of capital spending in the past six months were also conspicuously low, 43 percent vs 57 percent nationally, and this will weigh on growth numbers. Hiring plans were weak as well, a net 11 percent planning to create jobs compared to 18 percent nationally. Faced with the Federal Reserve's "back-peddling" and BREXIT to add to uncertainty, the prospects for economic growth beyond recent experience are cloudy at best.

Some other highlights of this Optimism Index include:

Optimism Index. The Index of Small Business Optimism increased 0.7 points to 94.5, still well below the 40 year average of 98, but the third monthly gain in a row, although the gains are very small. Four of the 10 Index components posted a gain, three declined and three were unchanged. The outlook for business conditions six months out continued to improve, although more owners still expect conditions to be worse than expect improvement. First quarter GDP growth was revised up again, to a sluggish 1.1 percent. Second quarter growth will likely be better, in the low 2 percent range. Small business owners appear to be on the same track they have followed for the past few years - maintenance mode, but not much growth. This w

Labor Markets. Fifty-six percent reported hiring or trying to hire (unchanged), but 48 percent reported few or no qualified applicants for the positions they were trying to fill. Fifteen percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem and the highest reading in this expansion. The issue ranks third out of nine possible issues listed. Twenty-nine percent of all owners reported job openings they could not fill in the current period, up 2 points, the highest reading in this expansion. Twelve percent reported using temporary workers, down 3 points, consistent with the overall decline in employment and hiring. A seasonally adjusted net 11 percent plan to create new jobs, down 1 point from May.

Inventory and Sales. The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past 3 months compared to the prior 3 months rose 4 percentage points to a net negative 4 percent, an improvement, but still negative. Eleven percent cited weak sales as their top business problem, down 3 points from May. Overall, trends have been improving, becoming less "negative", but not a sign of much strength. Seasonally adjusted, the net percent of owners expecting higher real sales volumes rose 1 point to a net 2 percent of owners, a weak showing. Expectations for stronger real sales peaked at a net 19 percent in December 2014 but have deteriorated substantially since the first quarter of 2015. The net percent of owners reporting inventory increases was unchanged at a net negative 6 percent (seasonally adjusted), a weak reading. The net percent of owners viewing current inventory stocks as "too low" was unchanged at a net negative 4 percent, more owners found stocks to be excessive rather than lean in light of sales expectations. The net percent of owners planning to add to inventory decreased 2 points to a net negative 3 percent. These weak inventory readings are consistent with the subpar growth reported in the economy.

Capital Spending. Fifty-seven percent reported capital outlays, down 1 point from May. The percent of owners planning capital outlays in the next 3 to 6 months rose 3 points to 26 percent, the third highest reading in this expansion (but historically weak). Seasonally adjusted, the net percent expecting better business conditions improved 4 percentage points to a net negative 9 percent. The seasonally adjusted net percent expecting higher real sales rose 1 point to 2 percent of all owners, not very strong. Clearly, expectations for the economy are not conducive to a meaningful improvement in business investment.

Inflation. Inflationary pressures remain dormant on Main Street. Twelve percent of owners reported reducing their average selling prices in the past three months (down 1 point and down 6 points from March), and 16 percent reported price increases (down 1 point). Seasonally adjusted, the net percent of owners raising selling prices was up 1 point from May to 2 percent. This follows nearly half the year in negative territory, with more owners cutting prices than raising them. In spite of the Federal Reserve's efforts, inflation on Main Street is M.I.A. Seasonally adjusted, a net 16 percent plan price hikes (unchanged). Prospects for a resurgence of inflation are low, and that's a good thing for consumers.

Earnings and Wages. A seasonally adjusted net 22 percent of owners reported raising worker compensation, down 4 points. The net percent planning to increase compensation fell 1 point to a net 14 percent. The strongest reading in this expansion occurred in January with 27 percent reporting higher employee compensation. The percent of owners citing the difficulty of finding qualified workers as their Most Important Business Problem rose 2 points to 15 percent, number three on the list of problems behind taxes, and regulations and red tape. This indicates that employers will face continued wage and benefit cost pressure in order to attract and keep good employees. Earnings trends were unchanged at a net negative 20 percent reporting quarter on quarter profit improvements. For the economy, profits fell 6 percent in Q1 and are expected to fall by several percentage points in Q2, as anticipated by the gap between the percent of NFIB owners raising compensation and the percent of owners raising selling prices and passing those costs along.

Credit Markets. Five percent of owners reported that all their borrowing needs were not satisfied, 3 points above the record low reached in September 2015. Thirty-two percent reported all credit needs met (up 1 point). Only 2 percent reported that financing was their top business problem. Twentynine percent of all owners reported borrowing on a regular basis (unchanged). The average rate paid on short maturity loans rose 40 basis points to 5.7 percent. The net percent of owners expecting credit conditions to ease in the coming months was a negative 6 percent, unchanged from May.

source: NFIB

>>>>> Scroll down to view and make comments <<<<<<

Permanent link to most recent post on this topic

Click here for Historical Releases Listing

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.

You can also comment using Facebook directly using he comment block below.

Econintersect Economic Releases


Print this page or create a PDF file of this page
Print Friendly and PDF

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Take a look at what is going on inside of
Main Home
Analysis Blog
Comments on Feyerabend’s ‘Against Method’, Part III
Taking a Wrench to Healthcare
News Blog
Baby Remarkably Survives Being Born With Heart Beating Outside Her Chest
October 2016 Conference Board Consumer Confidence Declines
Richmond Fed Manufacturing Survey Remains In Contraction In October 2016.
October 2016 Chemical Activity Barometer Continues to Signal Improving Economic Growth
Case-Shiller Home Price Index August 2016 Year-over-Year Rate of Growth Marginally Improves
Russia Falls Into Old Habits
Infographic Of The Day: Commodity Update, Is The Summer Slump Over
Early Headlines: Asia Stocks Mixed, Oil Mixed, Voting Fraud, Pres. Forecast Little Changed, CETA Not Dead, Generous Iraqis, Terrorists In Pakistan, Duterte Wants Divorce From US And More
October 24, 2016 Weather and Climate Report - La Nina / El Nino?
Most Read Articles Last Week Ending 22 October
Londoners Most Uneasy About Chatting To Strangers
Average Gasoline Prices for Week Ending 24 October 2016 Now Higher Than One Year Ago
Earnings And Economic Reports: Week Starting 24 October 2016
Investing Blog
Slow Motion Torture
The Week Ahead: How Long For This Trading Range?
Opinion Blog
What Triggers Collapse?
The Beer Goggles Stock Market
Precious Metals Blog
Preparing For Post-Election Social Unrest
Live Markets
25Oct2016 Pre-Market Commentary: Wall Street Pensive Awaiting Corporate Earnings And Economic News
Amazon Books & More

.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Middle East / Africa
USA Government

Crowdfunding ....



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved