Small Business Optimism Softer Than Expected

The small business optimism index fell.0.2 points in August to 94.4, a barely significant decrease yet softer than expectations of a slight increase that would have continued a weak rebound from the 2-year low set in March. Small business owners are reluctant to expand, expect worse business conditions and are unable to fill open positions, according to the August NFIB survey. Five of the 10 index components posted a gain, 4 fell and 1 was unchanged.

The biggest change registered in the month was a negative one, a 7-point drop to a minus 12 in the outlook for business conditions over the next 6 months. And the most deeply negative component, earnings trends, fell even lower by 2 points to a minus 23. On the other side of the coin and boding well for future business, plans to increase capital outlays, which have been the strong point of the survey, gained another 3 points to a very strong 28 points.

The survey paints a mixed picture on the employment side in August, though it also still remains another strong point. Small businesses have jobs but are having a hard time finding people to fill them, with job openings hard to fill rising 4 points to 30, making this the most extreme and the most positive of all components of the index. While many would take this for a sign that the job market is getting really tight, it could also mean that job seekers are poorly qualified. Perhaps as a consequence, employers are simply giving up on finding qualified staff, and so plans to increase employment fell by 3 points in August to 9.

Small business owners were slightly more optimistic in August about expansion, with those saying that now is a good time to expand component rising 1 point to 9, but NFIB noted that 38 percent of business owners cited the political climate as a reason not to expand, a record high for that factor.

In sum, the August report does not show the small business owner exuding much optimism, and the average level of optimism over the last 42 years, which is 98, is still quite out of reach.

Recent History Of This Indicator:
Since March, the small business optimism index has been climbing from a 2-year low. Employment readings have been leading the report and capital outlays have been strong. But expectations for the economy, though improving, are still in the minus column with earnings trends deeply negative.