Small business owners remain optimistic about the economy according to a new study from the National Federation of Independent Business (NFIB).
On Tuesday, the NFIB released its Small Business Optimism Index, which dropped 1.7 points to 103.3 in June. Despite the slight dip, the index remains high.
“While optimism remains at historically high levels, the June figure reverses the gain posted in May, with six components falling, three improving, and one unchanged. The Uncertainty Index rose substantially, increasing seven points to the highest level since March 2017,” the NFIB noted on Tuesday.
“Last month, small business owners curbed spending, sales expectations and profits both fell, and the outlook for expansion dampened. When you add difficulty finding qualified workers and harmful state-level laws and regulations, you’re left with a volatile mix where uncertainty has increased to levels not seen in more than two years,” said Juanita Duggan, the president and CEO of the NFIB.
NFIB Florida Director Bill Herrle also weighed in on the index.
“Our members may be feeling a little more cautious, but, overall, small business optimism is still at historically high levels,” Herrle said.
“Both capital spending plans and reports of actual spending fell in June, reversing last month’s gains. The inventory component strengthened in June with owners saying existing inventory stocks were lean and planning to add to them. Sales and earnings trends softened, while expected credit conditions remained favorable. More owners expect credit conditions to tighten rather than ease by a two-to-one margin, with most expecting no change,” the NFIB noted.
“As expectations for sales gains and the general business environment faded, uncertainty levels increased,” said NFIB Chief Economist William Dunkelberg. “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.”
The NFIB offered some insights from its latest numbers.
“Twenty-six percent of owners plan capital outlays in the next few months, down four points, and an indication there is more reluctance to make major spending commitments when the future becomes less certain. Fifty-four percent reported capital outlays, down 10 points. Of those making expenditures, 40 percent reported spending on new equipment (down four points), 22 percent acquired vehicles (down seven points), and 12 percent improved or expanded facilities (down seven points),” the NFIB noted. “The net percent of owners reporting inventory increases fell two points to a net zero percent, indicating no further building in inventory stocks in June. The net percent of owners viewing current inventory stocks as ‘too low’ rose four points to a net zero percent, overall balance. Major imbalances reported in May have been resolved in most industries with the exception of manufacturing (18 percent too large, five percent too low) and agriculture (eight percent too large, 14 percent too low). The net percent of owners planning to expand inventory holdings did increase one point to a net three percent, a solid number. A net seven percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down two percentage points but a very solid reading. The net percent of owners expecting higher real sales volumes fell six points to a net 17 percent of owners. Excluding the government shutdown earlier this year, this is the weakest reading since September 2017.”
“Contextually, owners expecting higher real sales volumes averaged a net negative three percent in the 12 months leading up to November 2016, making the current reading look relatively good, but not as good as the 31 percent reading in May of last year,” said Dunkelberg. “The economy is still advancing at a solid pace, but it is expected to be a slower pace than the first quarter.”