07/12/2005
CONTACT: Melissa Sharp, (202) 554-9000
| Optimism Components | Net % | Change |
| Plan to increase employment | 13 | -2 |
| Plan to increase capital outlays | 33 | 0 |
| Plan to increase inventories | 2 | -3 |
| Expect economy to improve | 16 | +11 |
| Expect higher real sales | 19 | -6 |
| Current inventory satisfaction | -1 | +1 |
| Current job openings | 20 | -3 |
| Expected credit conditions | -7 | +1 |
| Now a good time to expand | 22 | +4 |
| Earnings trends | -13 | -4 |
Small-Business Owners’ Outlook for the Future Remains Strong
WASHINGTON, D.C. – America’s entrepreneurial spirit remained steadfast in June, even in the face of rising oil prices. The Small Business Optimism Index, monitored for more than two decades by the National Federation of Independent Business, was unchanged from May’s 100.8 level.
Even more positive were data revealing that the net percent of owners expecting the economy to improve during the second half surged 11 points, and the share of those who think now is a good time to expand leapt four points.
“Small-business owners are pretty optimistic about the future,” NFIB Chief Economist William Dunkelberg noted. “Energy prices are higher than in the early 1980s, but oil consumption per dollar of Gross Domestic Product (GDP) is half of consumption 30 years ago. It’s just that GDP is so big.”
Job creation plans slipped two points but settled at a net 13 percent of all firms. Owners apparently fulfilled their hiring plans in May because June’s figures showed 20 percent reporting actual additions to total employment versus 11 percent reducing the number of employees.
Steadfast optimism spilled over into capital spending during the period. Boosted by a sharp hike of those who expect business conditions to improve over the next six months, one-third said they foresee outlays in the coming period, unchanged from last month. Spending frequency over the past six months fell three points to a solid 61 percent. Two-fifths (40 percent) bought new equipment, 23 percent added vehicles and 14 percent improved or expanded facilities. Six percent acquired new buildings or land for expansion reflecting a sentiment evident among the 22 percent who said now is a good time to expand facilities.
Dipping a point from May, a net 2 percent reported increasing their stocks. “Inventories are historically low for the entire economy relative to sales,” Dunkelberg said. “Inventory accumulation has been modest for months, a result of solid sales gains and new orders.” Plans to add to inventories fell three points to a net 2 percent. Seasonally adjusted, a negative net 1 percent reported inventories “too low,” a historically lean figure.
The net share of those reporting increased quarter-over-quarter sales volumes fell two points to a net 4 percent. Up five points, a seasonally unadjusted 32 percent reported higher sales.
June data indicated little evidence of inflation acceleration among small firms. Net reports of higher selling prices slid two points to 32 percent while 8 percent reported price reductions. Seasonally adjusted, a net 25 percent reported higher selling prices (up two points).
Earnings gains faded in June as sales weakened and compensation outlays rose. Among the 23 percent reporting higher earnings, nearly three-fourths cited stronger sales but none credited higher-average selling prices. Of the 35 percent noting lower earnings, weaker sales were blamed by 29 percent, 17 percent cited materials costs, 9 percent each named insurance costs and sales price reductions and 6 percent pointed to higher labor costs with a similar share blaming taxes and regulation.
Reports of higher compensation costs and higher average selling prices maintained a favorable balance for profit gains, which continue to improve despite rising energy prices and a weaker dollar.
The percent of small-business owners reporting borrowing at least once a quarter eased a point to 39 percent, just shy of May’s high point, a number that had been breached only once since 1989. The net share of those reporting more difficulty getting loans fell to 3 percent where it has been for more than a decade. Short-term loan rates held steady at slightly more than 7 percent.
Only 2 percent cited the cost and availability of credit as their main business problem. Strong cash flow and profitability are providing funds for capital spending. Nearly two-fifths (39 percent) reported having all their credit needs met, compared to 5 percent who reported problems obtaining financing. The net percent of owners expecting credit conditions to ease was a minus 7 percent.
NFIB’s Small Business Economic Trends is a monthly survey of small-business owners’ plans and opinions. Decision makers at the federal, state and local levels actively monitor these reports, ensuring that the voice of small business is heard. The NFIB Research Foundation conducts some of the most comprehensive research of small-business issues in the nation. The National Federation of Independent Business is the nation’s largest small-business advocacy group. A nonprofit, nonpartisan organization founded in 1943, NFIB represents the consensus views of its 600,000 members in Washington, D.C., and all 50 state capitals.
