Small business optimism edges up in August

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%. Owners continue to temper their expectations of future economic conditions as the COVID-19 public health crisis is expected to continue.

Real sales expectations in the next 3 months decreased 8 points to a net 5%. The percent of owners thinking it’s a good time to expand decreased 2 points to 11% of owners. Earnings trends over the past 3 months improved 3 points to a net negative 32%. Job creation plans increased 2 points to a net 18%. As reported last week in NFIB’s jobs report, a seasonally adjusted net 18% plan to create new jobs in the next 3 months, up 2 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% of owners reported capital outlays in the last six months. Of those making expenditures, 33% reported spending on new equipment, 21% acquired vehicles, and 13% improved or expanded facilities. Five percent acquired new buildings or land for expansion and 10% 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% of all owners (seasonally adjusted) reported higher nominal sales in the past 3 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 3 points to a net negative 11%. The net percent of owners viewing current inventory stocks as “too low” was unchanged from June at 1%. The net percent of owners planning to expand inventory holdings decreased from June by 3 points to a net 4%. This reading is the third-highest quarterly reading since 2007.

The net percent of owners raising average selling prices rose 3 points to a net negative 2% (seasonally adjusted). Not seasonally adjusted, 16% reported lower average selling prices and 15% reported higher average prices. Price hikes were most frequent in retail (14% higher, 22% lower) and wholesale (14% higher, 15% lower). Seasonally adjusted, a net 13% plan price hikes (up 1 point).

A net 15% reported raising compensation (seasonally adjusted), remaining well below the 36% reading in February before COVID-19 policies were implemented in March. A net 13% 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% 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 3 points to a net negative 32% reporting quarter on quarter profit improvement. The major cause of profit weakness is weak sales.

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