Optimism Continues Among Small-Business Owners, but Sustainability is Questionable

A surge in optimism among small-business owners that started with the U.S. presidential election continues, but has been falling since a peak in January. Economic growth in the first half of the year has been the same as in the past three or four years, with little progress. For the remainder of the year, euphoria will be hard to find, according to the National Federation of Independent Business (NFIB) Index of Small Business Optimism.

The index fell in June by 0.9 points to 103.6. It peaked in January at 105.9. Four of the 10 index components registered a gain, five declined and one remained unchanged.

Four percent of small-business owners reported that all of their borrowing needs were not satisfied, an historically low number, the NFIB said. Twenty-seven percent reported all credit needs met and 54% said that they did not want a loan.

The net percent of owners who reported higher nominal sales in the past three months compared to the prior three months, seasonally adjusted, was -4%. The net percent of owners expecting higher real sales volumes lost five points, to 17%. This shows low prospects for growth in the second half of the year, the NFIB said, since owners are less likely to hire employees or order new inventory with weak sales prospects.

Among owners, 57% reported capital outlays. Of those, 40% spent on new equipment, 21% acquired new vehicles, and 13% improved or expanded facilities. Capital spending has declined from earlier in the year, but the percent of owners planning outlays in the next three to six months rose three points to 30%, the strongest reading since September 2007, the NFIB said.

“A continuation of the high levels of optimism in the small business sector will depend heavily on Congressional progress on the major issues for small-business owners: health care, tax reform and regulatory relief,” the report said. “More substantial progress is needed on these major issues if owner optimism is to be sustained and produce accelerated hiring and spending.”

– Adam Fusco, associate editor

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