Small Business Optimism: ‘No Real Enthusiasm’

The NFIB's Index of Small Business Optimism rose just two-tenths of a percentage point in May to 93.8.
Katie Kuehner-HebertJune 14, 2016

U.S. small businesses have “no real enthusiasm” for capital spending, boosting inventories, or expanding their enterprises, according to the National Federation of Independent Business’ monthly survey of about 700 small business owners.

The trade group’s so-called Index of Small Business Optimism rose two tenths of a point in May to 93.8, well below the 42-year average of 98.

“The bottom line is that without an empowered small business sector, the economy will grow at a mediocre pace,” NFIB Chief Economist Bill Dunkelberg said in a press release.

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Four of the 10 Index components posted a gain, four declined, and two were unchanged. The biggest increase was “Expected Business Conditions,” which rose five points from April, but was down nine percentage points below last year’s reading.

More than half of small businesses surveyed (58%) reported hiring or trying to hire (up 3 percentage points), but 48% percent found few or no qualified applicants for the positions they were trying to fill. Hiring activity increased substantially, but apparently the “failure rate” also rose as more owners found it hard to identify qualified applicants.

Fourteen percent cited weak sales as their top business problem, up 3 percentage points from April. Seasonally adjusted, the next percent of owners expecting higher real sales volumes was unchanged at a net 1% of owners, well below the average net 14% reading in the first three months of 2015.

The net percent of owners reporting inventory increases deteriorated 1 percentage point to a net negative 6%, seasonally adjusted, while the net percent of owners viewing current inventory stocks as “too low” improved a percentage point to a net negative 4%.

“These weak inventory investment readings are consistent with the rather poor performance of consumer spending in the first quarter, leaving owners with excessive stocks and no incentive to add to them,” the NFIB said.

Fifty-eight percent of small businesses reported capital outlays, down 2 percentage points. The percent of owners planning capital outlays in the next 3 to 6 months fell 2 percentage points to 23%. Seasonally adjusted, the net percent expecting better business conditions increased 5 percentage points to a net negative 13%.

A seasonally adjusted net 26% of owners reported raising worker compensation, up 2 percentage points, while the net percent planning to increase compensation was unchanged at a net 15%.

“Overall, the percent of owners reporting that they raised worker compensation remains high for this recovery while the net percent of owners raising prices remains near zero, indicating that these costs are not being passed on to customers,” the association said.

The percent of owners citing the difficulty of finding qualified workers as their “Most Important Business Problem” rose one percentage point to 13%, number four on the list of problems behind taxes, regulations and red tape, and weak sales.