June Small Business Optimism Slips on Low Sales Expectations

The National Federation of Independent Business (NFIB) Tuesday morning reported that its small business optimism index dropped from 105.0 in May to 103.3 in June. Last August the index reading of 108.8 was the highest in the 45-year history of the index. The consensus estimate from economists had called for the June index to slip to 104.0.

The percentage of business owners who now expect the economy to improve in the next few months remained unchanged at 16% in June. The percentage who expect sales to rise over the same period tumbled six points to come in at 17%.

Some 28% of small business owners reported raising employees’ pay in the past three months. That’s down six points on a seasonally adjusted basis compared with May. Since December, net compensation projections are down three points to 21%, also down three points month over month.

The four “hard” measures of the index posted mixed results last month. The month-over-month job creation component fell three points to 18%, the job openings component dropped by two points to 36%, capital spending plans slipped four points to 26%, and plans to increase inventory investment rose a point to 3%.

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NFIB chief economist William Dunkelberg commented: “As expectations for sales gains and the general business environment faded, uncertainty levels increased. Still, job openings and plans to create jobs remain historically very strong, and while it’s not as ‘hot’ as May, Main Street is still running strong.”

Some 36% of business owners reported job openings they couldn’t fill, down by two points month over month. Half reported few or no qualified applicants for available jobs, down four points compared to May’s report. More than a fifth (21%) of business owners said finding qualified workers remains their single most important business problem, followed by taxes (18%) and government regulations (13%).

The strong June jobs report has given markets that were expecting a cut in the federal fund rate the jitters. With jobs remaining plentiful and wages rising, a rate cut to juice the U.S. economy may be delayed.
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