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Small Business Optimism Index Drops in July

August 11, 2020, 07:14 AM
Filed Under: Economy

NFIB’s Small Business Optimism Index fell 1.8 points to 98.8 in July, near the survey’s historical average. Overall, 4 of the 10 Index components improved, 5 declined, and 1 was unchanged. The NFIB Uncertainty Index increased 7 points to 88. Reports of expected better business conditions in the next six months declined 14 points to a net 25 percent. Owners continue to temper their expectations of future economic conditions as the COVID-19 public health crisis is expected to continue.

“This summer has been challenging for many small business owners who are working hard to keep their doors open and remain in business,” said NFIB’s Chief Economist Bill Dunkelberg. “Small business represents nearly half of the GDP and this month we saw a dip in optimism. There is still plenty of work to be done to get businesses back to pre-crisis numbers.”

Other key findings include:

  • Real sales expectations in the next three months decreased eight points to a net 5 percent.
  • The percent of owners thinking it’s a good time to expand decreased two points to 11 percent of owners.
  • Earnings trends over the past three months improved three points to a net negative 32 percent.
  • Job creation plans increased two points to a net 18 percent.

As reported last week in NFIB’s jobs report, a seasonally adjusted net 18 percent plan to create new jobs in the next three months, up two points from June and 17 percentage points above April. Owners are interested in hiring but many workers may not be ready to return.

Up one point from last month, 49 percent of owners reported capital outlays in the last six months. Of those making expenditures, 33 percent reported spending on new equipment, 21 percent acquired vehicles, and 13 percent improved or expanded facilities. Five percent acquired new buildings or land for expansion and 10 percent spent money for new fixtures and furniture. Twenty-six percent of owners are planning capital outlays in the next few months.

A net negative 28 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months. Even with states reopening, sales are often lower due to business restrictions, social distancing requirements, and a still-reduced willingness of consumers to go out and mingle with the general population.

The net percent of owners reporting inventory increases improved three points to a net negative 11 percent. The net percent of owners viewing current inventory stocks as “too low” was unchanged from June at 1 percent. The net percent of owners planning to expand inventory holdings decreased from June by three points to a net 4 percent. This reading is the third-highest quarterly reading since 2007.

The net percent of owners raising average selling prices rose three points to a net negative 2 percent (seasonally adjusted). Not seasonally adjusted, 16 percent reported lower average selling prices and 15 percent reported higher average prices. Price hikes were most frequent in retail (14 percent higher, 22 percent lower) and wholesale (14 percent higher, 15 percent lower). Seasonally adjusted, a net 13 percent plan price hikes (up one point).

A net 15 percent reported raising compensation (seasonally adjusted), remaining well below the 36 percent reading in February before COVID-19 policies were implemented in March. A net 13 percent plan to do so in the coming months. Eight percent cited labor costs as their top problem, unchanged from June’s reading.

Twenty-one percent of owners selected “finding qualified labor” as their top business problem, with 37 percent in construction. The COVID-19 disruption for millions of workers did not change the skills of the existing workforce.

The frequency of reports of positive profit trends rose three points to a net negative 32 percent reporting quarter on quarter profit improvement. The major cause of profit weakness is weak sales.

Only 3 percent of owners reported that all their borrowing needs were not satisfied and 35 percent reported all their credit needs were met. Fifty-one percent said they were not interested in a loan. A net 2 percent reported their last loan was harder to get than in previous attempts.

Click here to view the NFIB Small Business Economic Trends Survey.

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