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Small-Businesses Turning Pessimistic on Economy

By Brandon Moseley
Alabama Political Reporter

The National Federation of Independent Business’ (NFIB) Index of Small Business Optimism plummeted in June. According to the NFIB report the disappointing result is a reversal of several months of slow but positive growth.  The June index fell three points, falling to 91.4 and is at the lowest level since October 2011.

The index is composed of ten components.  Only one of the ten showed any improvement.  Labor market indications, spending plans for capital equipment, and inventories were responsible for 40% of the overall decline.

Rosemary Elebash, the state director of NFIB/Alabama, said, “What the survey tells me is that small-business owners are really worried about where things are headed.”

NFIB Chief Economist William Dunkelberg said, “All in all, this month’s survey was a real economic downer.  The economy has definitely slowed; job growth will be far short of that needed to reduce the unemployment rate unless lots of unemployed leave the labor force—no consolation.  Taxes remain a top concern for the small-business community.”

Chief Economist Dunkelberg said, “With the Supreme Court’s endorsement of the individual mandate as a tax in its health care decision, we will have to wait for July’s survey to realize the effect it will have on small-business confidence. With over 20 new taxes contained in the law—a price-tag of $800 billion—and most of the regulations yet to be written by HHS, the implications for employee costs remain unclear.  Uncertainty reigns supreme for much of Main Street.”

June’s report also showed a reversal in earnings trends, chipping in 21 percent of the decline, and expectations for business conditions and real sales gains contributed 40 percent of the Index decline.

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23% of business owners reported that weak sales were their most important business problem, 21% complained that high taxes were their biggest business problem, and 19% reported unreasonable regulations and red tape.

June’s Optimism Index reported that Capital Expenditures dropped 3 percentage points to 52%.  Of the business owners who were reporting that they were making expenditures, 37% reported spending on new equipment (unchanged), 18% purchased or leased new vehicles (down 6 percentage points), and 11% improved or expanded their facilities (down 3 percentage points).  5% acquired new buildings or land for expansion (down 2 points).  13% spent money for new fixtures and furniture (unchanged). The percent of owners planning capital outlays in the next 3 to 6 months dropped 3 points to 21%. Only 5% said that they thought that now was a good time to expand facilities (down 2 points). Most business owners said that they were not expecting better business conditions in the next 6 months.  25% expect business conditions to deteriorate in the next six months.

The net percentage of owners reporting higher nominal sales over the past three months lost 7 points, falling to -5%. 26% reported higher sales in the past quarter while 28 percent reported lower sales. 29% expect sales to improve in the next quarter (down 7 points from April).  25% expect sales to declines (up 4 points). The NFIB concludes that these low expectations will not lead to job creation or inventory investment.

Job creation numbers turned negative for the first time since December.  The net change in employment per firm was -0.11. Just 9% of owners added an average of 2.6 workers per firm in the past few months, however 12% cut workers by an average of 2.8 workers. The other 79% reported no net change.  Only 15% of business owners reported having hard to fill job openings.  This is down 5 points from April and suggests that the nation’s unemployment rate will rise. Only 10% report that they plan to add workers in the next quarter (down 7 points from April).  6% report that they are planning to cut workers in the next quarter (up 1 point).

The report is based on the responses from 740 randomly sampled small businesses belonging to NFIB  surveyed throughout the month of June.

The National Federation of Independent Business is the #1 small-business association in both the United States and in the state of Alabama. The NFIB is a nonprofit, nonpartisan organization that was founded in 1943.

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Written By

Brandon Moseley is a former reporter at the Alabama Political Reporter.


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