Small Business Optimism in the Doldrums

Old-fashioned Main Street
Old-fashioned Main Street

The National Federation of Independent Business (NFIB) reported Tuesday morning that its small business optimism index for August came in at 94, essentially flat with July's reading of 94.1. In May the index reached 94.4, its second highest reading since December 2007.

Of the 10 index components, the NFIB recorded gains in five. The reading in current inventories was flat in August, while readings fell in four components. The largest drop came in earnings trends, where the change from July was -13 points. On the positive side, real sales expectations rose eight points.

Another positive surprise came in business owners' plans to increase employment. The index reading rose seven points, leading the NFIB's chief economist to say:

The August reading provided us with a rather perplexing set of statistics; internally consistent on some dimensions, such as lower sales bringing lower profits, but contradictory in other ways, such as lower job openings but huge gains in hiring plans. We know that the upcoming implementation deadlines for the healthcare law are weighing on the minds of employers, and the current dim prospects for real tax reform must be, as well.

Sales were reported down a net 17 points in August, to an index reading of -24. That represents the second steepest monthly decline in the history of the NFIB survey. Expectations rose by 2% to a total of 7% for sales increases during the next three months.

Just 2% of small business owners raised prices in the month of August, while 21% expect to raise prices in the next few months and 3% plan to lower prices.

The biggest drags on independent businesses, according to the survey, were taxes (noted by 23% of respondents), regulations and red tape noted by 21% of respondents) and poor sales (noted by 17%).

Filed under: Economy