Small Business Optimism Slips on Expectations of Weak Economy

Two components of the index related to jobs improved in June, but the gains were offset by declines in the outlook for capital spending and lowered expectations for improving business conditions.

The single most visible decrease in the index components for June came in the number of business owners who say they expect the economy to improve. That number fell 10 points in June, erasing a nine-point gain in May.

The NFIB’s chief economist said:

While reports of actual net job creation per firm were positive, consumer and business owner optimism remain low, with both spending growth and sales expectations weak. This means there are more jobs but not much more output. With election day months away and no sign of change in Washington, economic growth for the rest of the year will continue to be sub-par. The unemployment rate will fall more due to people leaving the labor force than to jobs being created and fewer hands making GDP.

The NFIB reports that 26% of business owners currently have positions open that they are unable to fill (up 2% compared with May) and that 43% said there were few or no qualified applicants for the open positions, a decrease of 3% from May’s total.

One promising note was struck in the wages area. On a seasonally adjusted basis, a net 21% of small businesses reported paying higher compensation, up 1% from May and among the best readings since 2008. A net 13% of business owners plan to raise compensation in the next few months, down two points compared with the past three months’ reports.

The NFIB repeated an observation it has made in each of the past two months: “The reported gains in compensation are now solidly in the range typical of an economy with solid growth.”

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