Small Business Optimism Rises in June

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The National Federation of Independent Business (NFIB) Tuesday morning reported that its small business optimism index for June rose 0.7 point, from 93.8 in May to come in at 94.5. The June reading remains well below the index’s 42-year average of 98.

The four “hard” measures of the index posted mixed results last month. The job creation component fell a percentage point in June to 11%, the job openings component rose two points to 29%, capital spending plans rose three points to 26% and inventory investment plans fell to points to −3%.

Some 22% of small business owners reported raising employees’ pay in the past three months. That’s down four points on a seasonally adjusted basis from the May total. Just 14% are planning to raise wages in the next three months, down one point month over month.

In its commentary on the report, the NFIB noted:

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.

Fred Graziano, head of Commercial Banking at TD Bank, commented on the May report:

While the Index of Small Business Optimism remained relatively flat month-over-month, business owners cite uncertainty with the economy and the political climate. As we look ahead, however, we anticipate that gradual increases in GDP and hiring will contribute to bottom line growth in the small business sector.

The NFIB reports that 29% of business owners currently have positions open that they are unable to fill (up two percentage points from May) and that 48% said there were few or no qualified applicants for the open positions, unchanged from the prior month’s total.

Business owners said their single most important problem is taxes (23%), government regulations and red tape (19%) or quality of labor (15%). The least important problems are financing and interest rates and inflation (2%).

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