The 2020 Mid-Year Economic Update_long

NFIB: Small Business Optimism Improves, But Don’t Get Too Excited

Optimism increased 1.8 points to a reading of 95.2.

Small business optimism in April was up from March at 95.2, a post-recession high. The index is still 5 points below the average reading from 1973 to 2008. The economy continues to perform modestly as April’s index indicated as it crossed the 95 marker for the first time since 2007. 

Small business confidence rising is always a good thing, but it's tough to be excited by meager growth in an otherwise tepid economy. Washington remains in a state of policy paralysis. From the small business perspective there continues to be no progress on their top problems:  cost of health insurance, uncertainty about economic conditions, energy costs, uncertainty about government actions, unreasonable regulation and red tape, and the tax code.” said NFIB chief economist Bill Dunkelberg.”So while the improvement is welcome, as long as small business owners continue to have negative views owners about the future, the 95 number may fade.”

NFIB owners increased employment by an average of 0.07 workers per firm in April (seasonally adjusted), weaker than March but the seventh positive month in a row and the best string of gains since 2006.

Seasonally adjusted, 13 percent of the owners (down 1 percentage point) reported adding an average of 3.7 workers per firm over the past few months. Offsetting that, 11 percent reduced employment (up 1 point) an average of 3.3 workers, producing the seasonally adjusted net gain of 0.12 workers per firm overall.

Fifty-one percent of owners hired or tried to hire in the last three months and 41 percent (83 percent of those trying to hire or hiring) reported few or no qualified applicants for open positions.

Twenty-four percent of all owners reported job openings they could not fill in the current period (down 1 point). This suggests that the unemployment rate will decrease a tenth of a point or more. Fourteen percent reported using temporary workers, up 1 point from March.

The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months compared to the prior three months improved 4 points to a net negative 2 percent. This is the best seasonally adjusted reading since early 2012. Expected real sales volumes decreased 2 points after a strong 9 point gain in March, falling to a net 10 percent of owners.

Earnings trends improved 4 points in April to a net negative 20 percent (net percent reporting quarter to quarter earnings trending higher or lower). Not seasonally adjusted, 15 percent reported profits higher quarter to quarter (up 3 point), and 41 percent reported profits falling (down 1 points), tracking the disappointing sales reports.

Credit continues to be a non-issue for small employers; 5 percent of owners reported that all their credit needs were not met, 1 point above the record low. Thirty-one percent reported all credit needs met, and 53 percent explicitly said they did not want a loan. Only 1 percent reported that financing was their top business problem compared to 22 percent citing taxes, 20 percent citing regulations and red tape and 15 percent citing weak sales.

Small business owners are far more concerned about taxes, regulations and health care costs than financing issues.

The pace of inventory reduction continued, with a net negative 6 percent of all owners reporting growth in inventories (seasonally adjusted). The net percent of owners planning to add to inventory stocks was a net 3 percent (up 2 points), indicating the small business sector is adding only a little to the accumulation of stocks reported in the GDP accounts.

Three-percent of the NFIB owners reported reducing their average selling prices in the past 3 months (down 2 points), and 12 percent reported price increases (up 4 points).

Download the complete study from the National Federation of Independent Business.

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