LIKE virtually everything emanating from the economy these days, a survey of small and independent business owners by the National Federation of Independent Business (NFIB) produced a flip side to any good news.
The good news: Small-business optimism made a substantial move in June, with the Index of Small Business Optimism gaining 1.6 points to 101.7 — the highest since last November's 101.9.
The bad news: The index is dominated by soft variables such as expectations for growth, not hard spending plans.
The good news: The tax cuts may have given a boost to expectations for business conditions and real sales.
The bad news: Capital spending plans did not get a lift.
The good news: Expected business conditions rose to a monthly record high.
The bad news: Apparently, owners think everyone else will be motivated by the most recent policy changes, but do not plan to increase their own spending until actual real sales justify the outlay.
The major findings of the survey:
28% reported that the cost and availability of insurance is the single most important business problem.
Plans to add inventories fell two points in June to a net 4% of all firms.
Hiring plans rose two points to a net 10% of all firms.
Sales fell one point to a net -10%.
16% reported increasing labor compensation, with 5% citing labor costs as their No. 1 business concern.
A net 1% of all owners reported raising average selling prices, down two points from May.
Capital spending plans held steady at 28% of all firms in June, with 57% reporting actual outlays in the past six months, a three-point decline from last month.
- Optimism Index
Six components posted gains, two posted declines, and two were unchanged. Half of this month's gain was due to expectations for an improved economy. One third of the gain was due to expected sales.
Seasonally adjusted, 15% reported that the current period is a good time to expand, up four points from May. This index has a historic low of six and a high of 28. Perhaps this is the first hint that capital spending will pick up some strength in the second half of the year.
Profit trends improved modestly in June, logging the best performance in six months. Unadjusted, 21% reported higher earnings, up four points, but 41% reported weaker earnings, down four points.
There was no improvement in sales trends in June. The net percent of owners reporting higher sales was a seasonally adjusted -10%, a one point decline from May. Unadjusted, 27% of all owners reported higher sales in the most recent three-month period, up three points, while 30% reported lower sales, down six points.
The net percent of owners reporting higher average selling prices fell from 3% in May to 1% in June. Unadjusted, 16% reported increases in average selling prices in the past three months, down three points, and 16% reported reductions, up one point.
Operating small firms added a seasonally adjusted average of -0.23 employees per firm, marking the 27th negative month in the past 29 months. Over the past three months, 12% of all owners reported increasing employment a seasonally adjusted average of 3.0 employees per firm, and 16% reported reducing employment by a seasonally adjusted average of 3.2 employees.
A seasonally adjusted net 16% of the owners reported raising employee compensation over the past three months, down four points from May. Plans to raise compensation rose one point to a seasonally adjusted net 11% of all firms. This figure is close to the 9% record low for the monthly surveys.
- Credit conditions
Credit markets remain friendly, with 6% reporting that financing was harder to get and 1% reporting that it became easier. A net 5% reported harder borrowing conditions, with 35% reporting that all of their borrowing needs were met.
- Interest rates
The seasonally adjusted net percent of owners reporting higher rates was -12% in June. The recent rate cut will keep these figures in negative territory for some time to come. Unadjusted, 3% reported higher rates on new loans and 12% reported lower rates.
Small-business owners continued to liquidate inventories. The seasonally adjusted net percent of owners reporting inventory accumulation eased three points to -6% in June. This marks the 27th consecutive month in which more owners reported inventory reductions than gains.
- Capital outlays
Reports of outlays in the past six months fell to 57% of all firms, down three points. Vehicle purchases were reported by 21%, unchanged from last month.