from the National Federation of Independent Business
Business owners’ expectations for better business conditions tumbled in June along with plans to create jobs according to monthly Index of Small Business Optimism.
[editor’s note: Market expectation from Bloomberg / Econoday was between 104.0 to 106.9 (consensus 104.5) versus the actual reading of 103.6.]
Said NFIB President and CEO Juanita Duggan:
Small business optimism dropped in response to the gridlock in the Senate over the healthcare reform bill. This happened in March, when optimism dipped after the House initially failed to repeal Obamacare. I hope every senator is paying attention, because small business owners are paying attention to them.
The Index fell 0.9 points to 103.6. Four of the 10 components posted a gain. Five declined, and one remained unchanged.
Expected better business conditions fell 6 points, a significant drop, while expected sales dropped 5 points. Job openings (-4) and job creation plans (-3) also declined in June. On the positive side, inventory satisfaction increased by 3 points, and plans to increase inventory rose by 3 points.
The Optimism Index shot up in November after the election based on the expectation that Congress and the President would reform taxes and healthcare.
Said NFIB Chief Economist Bill Dunkelberg:
The Index remains at a historically high level, but within the Index there are signs of trouble that should be a concern. Fewer business owners expect business conditions to improve, and fewer expect sales to improve.
The data is a mixed bag and the overall Index remains strong by historical standards. But there are signs that small business owners are less confident in the near-term future. That could be problematic if it continues.
As Washington fails to deliver on those two priorities small business optimism is dropping. Gridlock is driving down small business optimism, which will eventually drive down the economy.
Report Commentary:
First quarter GDP growth was finalized at 1.4 percent, a poor performance even after allowing for the peculiarities of GDP accounting. Consumer sentiment (University of Michigan) fell a few points to the lowest reading this year, apparently, consumers are not finding the economy looking a lot better going forward. This, even though income grew at the fastest pace in two years. Much of this growth was due to dividends, which most consumers don’t receive as part of their regular income. Spending grew very little and more small business owners reported sales declines quarter on quarter than reported gains. Second quarter growth will be much stronger than Q1, although still likely to be unimpressive. Consumer saving is up and auto sales were sluggish. Over the last 12 months, reports that the government is doing a good job peaked in January at 28 percent but is now at its lowest level since last June when it was 19 percent.
